Analyzing Charter Flight Decisions

The assignment presents two scenarios for Flying Airline Company regarding a New Special Tourist Charter Flight offer. It requires analyzing the profitability impact based on available spare capacity. Scenario 1 assumes space is available, while Scenario 2 explores the situation where there's no spare capacity. The analysis involves calculating revenue, variable expenses, fixed costs, and ultimately determining the profit or loss for each scenario. This helps Flying Airline Company make a data-driven decision about accepting the charter flight offer.

Running head: ACC 202 MANAGEMENT ACCOUNTING
ACC 202 Management Accounting
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Table of Contents
Situation 1: Decision of replacement of loader truck.................................................................2
Calculating the provision whether the Flying Airline Company needs to use new or old loader
for their services:........................................................................................................................2
Situation 2: Calculating the income from flight route...............................................................3
A) Identifying the viability of flight route used by the Airline purely on financial perspective:
....................................................................................................................................................3
B) Evaluating the other factors that could be discussed before making the decision:...............4
Situation 3:.................................................................................................................................4
A) Depicting with relevant calculation whether to accept special tourist charter flight when
spare capacity is present:............................................................................................................4
B) Depicting whether to accept special tourist charter flight where spare capacity is not
present:.......................................................................................................................................5
Reference and Bibliography:......................................................................................................7

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Situation 1: Decision of replacement of loader truck
Calculating the provision whether the Flying Airline Company needs to use new or old
loader for their services:
Situation 1
Particulars Not replacing Old
loader
Replacing Old
loader
Differential
cost
Depreciation $ 25,000.00
Write off $ 25,000.00
Proceeds from sale $ (5,000.00) $ 5,000.00
Depreciation of new loader $ 20,000.00 $ (20,000.00)
Operating costs $ 80,000.00 $ 50,000.00 $ 30,000.00
Total $ 105,000.00 $ 90,000.00 $ 15,000.00
The above table mainly helps in understanding different cost structure, which is
presented to the Flying Airline Company. However, the decision needs to be conducted by
the management regarding the implementation of new loader or utilising the old loader. The
difference in differential cost between old loader and new loader is depicted in the above
table, where the use of new loader is more beneficial for the Flying Airline Company. From
the use of old loader, the Flying Airline Company will mainly incur a total operating cost of
$105,000. On the other hand, implementation of new loader could directly reduce the
operation cost to $90,000, which is lower than previously operating cost. Hence, Flying
Airline Company could directly utilise the opportunity to use new loader, as it will
substantially decline the cost incurred by the company. This decline in differential cost could
directly allow the organisation for generating higher revenue from its operations due to

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decline in actual cost. Ax and Greve (2017) mentioned that organisation with the help of cost
analysis are able to identify ways in which actual expenses incurred from operation could be
reduced for increasing their revenue.
From the implementation of new loader, the Flying Airline Company will save
$15,000, which could directly boost profits of the organisation. Therefore, from the
evaluation it could be understood that use of new loader could allow Flying Airline Company
to reduce its actual cost and generate income in the long run.
Situation 2: Calculating the income from flight route
A) Identifying the viability of flight route used by the Airline purely on financial
perspective:
Situation 2 Non Stop Route With stop route Differential cost
Passenger revenue $ 240,000.00 $ 251,000.00 $ (11,000.00)
Cargo revenue $ 80,000.00 $ 80,000.00 $ -
landing fees in San Francisco $ (5,000.00) $ 5,000.00
Flight crew cost $ (2,000.00) $ (3,400.00) $ 1,400.00
Fuel $ (21,000.00) $ (26,000.00) $ 5,000.00
Meal $ (4,000.00) $ (4,900.00) $ 900.00
Aircraft maintenance $ (1,000.00) $ (1,000.00) $ -
Net revenue $ 292,000.00 $ 290,700.00 $ 1,300.00
The above table mainly helps in identifying the benefits and revenue that will be
generated from non-stop and with-stop route. The financial performance of the company will
mainly decline if the with-stop route is taken by the company. The net income generated by

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with-stop route is 290,700, while the non-stop route will generate 292,000, which has a
differential cost of $1,300. This difference in cost is high, which will decline the actual
revenue previously conducted by the company. Therefore, it could be estimated that the
company by not implementing an additional route and maintaining their current non-stop
route might help in generating higher revenue. In this context, Chenhall and Moers (2015)
mentioned that with the use of differential cost analysis, organisation is able to evaluate
financial significance of different decisions. However, from the evaluation a miniature
difference in revenue could be identified from the two calculation, where the company could
utilise revenue for adding more routes in its operations.
B) Evaluating the other factors that could be discussed before making the decision:
Therefore, two different factors, which could be considered in making adequate
investment decision for Flying Airline Company. The two factors needed for the evaluation is
Social and Economic factor, which could allow the company in making investment decision.
In addition, the evaluation of economic factor could directly allow the company in identifying
the financial benefits, which could be obtained from customers. Furthermore, the evaluation
of purchasing power of customers could directly help in identifying different ways of
revenue, which could be generated from the flight patterns. Moreover, the social factor of on-
route destination could also be evaluated, which could help in depicting the trend of
customers (Cooper, Ezzamel and Qu 2017). This evaluation could help in specifically
targeting the customer and generate revenue anticipated in the case.
Situation 3:
A) Depicting with relevant calculation whether to accept special tourist charter flight
when spare capacity is present:
Situation 3

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Particulars Value Value
Passenger revenue $ 250,000.00 $ 160,000.00
Cargo revenue $ 30,000.00 $ -
Total revenue $ 280,000.00 $ 160,000.00
Variable expenses $ 90,000.00 $ 85,000.00
Fixed cost $ 80,000.00 $ -
Total expenses $ 170,000.00 $ 85,000.00
Profit $ 110,000.00 $ 75,000.00
Situation 3 depicted in the above table mainly helps in identifying the revenue
opportunity, which could be generated from New Special Tourist Charter Flight. However,
from the evaluation it could be understood that if there is space for the charter flight then the
profits generated from the New Special Tourist Charter Flight is $75,000. On the other hand,
the actual revenue that is generated from the operation is $110,000, which is not achievable
due to the special order package provided to Flying Airline Company. Hence, the Flying
Airline Company can accept the offer of New Special Tourist Charter Flight, as it could help
in generating higher revenue for the company. The fixed cost is mainly at zero, which is
directly increasing profitability of the company from implementation of New Special Tourist
Charter Flight.
B) Depicting whether to accept special tourist charter flight where spare capacity is not
present:
Particulars Value
Passenger revenue $ 160,000.00
Total revenue $ 160,000.00

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Variable expenses $ 85,000.00
Fixed cost $ 80,000.00
Total expenses $ 165,000.00
Loss $ (5,000.00)
The above calculation indicates extra cost incurred by the company, where there is no
spare space available to Flying Airline Company for the new offer. In this case, the company
needs to incur additional cost of $80,000, which could increase the actual total expenses from
the new offer. This increment in the total expenses could directly affect the profitability,
which was previously earned from the new operation (Otley 2016). Hence, if the company
has extra space then it could accept the new offer, while the absence of spare space could
force the company to incur loss.

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Reference and Bibliography:
Ax, C. and Greve, J., 2017. Adoption of management accounting innovations: Organizational
culture compatibility and perceived outcomes. Management Accounting Research, 34, pp.59-
74.
Chenhall, R.H. and Moers, F., 2015. The role of innovation in the evolution of management
accounting and its integration into management control. Accounting, Organizations and
Society, 47, pp.1-13.
Cooper, D.J., Ezzamel, M. and Qu, S.Q., 2017. Popularizing a management accounting idea:
The case of the balanced scorecard. Contemporary Accounting Research.
Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2014. Lean manufacturing and firm
performance: The incremental contribution of lean management accounting
practices. Journal of Operations Management, 32(7), pp.414-428.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research, 31, pp.45-62.
Renz, D.O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.