Financial Analysis and Management Accounting for Flying Airlines

This report provides a comprehensive management accounting analysis of Flying Airlines, evaluating key financial decisions. The analysis covers three situations: the replacement of a loader truck, the evaluation of a flight route with a stopover in Fiji, and the consideration of a tourist charter flight. The report uses cost and profit analysis to determine the most financially sound decisions for the airline. The findings indicate that replacing the loader truck offers no significant financial benefit, the stopover flight route is less profitable than the non-stop route, and the charter flight should not be considered due to negative profitability. The report emphasizes the importance of considering both financial and non-financial factors in decision-making, such as seasonal variations and competition.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
SITUATION 1.................................................................................................................................1
1...................................................................................................................................................1
SITUATION 2.................................................................................................................................2
a. Stating whether Flying Airlines should use the alternative flight route with the stopover or
not................................................................................................................................................2
b. Stating other factors that should also be considered at the time of evaluation........................3
SITUATION 3.................................................................................................................................3
a. Presenting whether on the basis of spare capacity aspect tourist charter flight should be
considered or not..........................................................................................................................3
b. Stating profit when no spare capacity is considered................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Management accounting is the process which in turn highly associated with the
collection, analysis, interpretation and communication of information that aid in organizational
goals & objectives (Kaplan and Atkinson, 2015). Reports which are prepared through the means
of management accounting tools and techniques provide managers with accurate and timely
information for decision making. The present report is based on the case scenario of The Flying
Airlines Company which is now planning to make focus on restructuring of its operations. In
this, report will provide deeper insight about the aspect whether firm should take decision
pertaining to replacement or not. Besides this, it will also shed light on the extent to which
company should focus on landing flight in Fiji.
SITUATION 1
1.
Case scenario entails that Flying Airlines use loader truck for loading meals on to aero-
plane. In this, manager is concerned whether replacement of existing truck with the new one will
prove to be profitable or not. For this purpose, following evaluation has done such as:
Given that:
Old loader truck New
Particulars Figures (in $) Figures (in $)
Cost of loader 100000 20000
Depreciation each year 100000 / 4 = 25000 20000
Variable operating cost per annum 80000 50000
Cost analysis
Particulars Existing loader (in $) New (figures in $)

Capital investment 20000 – 5000 = 15000
Depreciation 25000 20000
Operating expenses 80000 50000
Loss on selling of existing
loader 20000
Total cost
25000 + 80000 =
105000
15000 + 20000 + 50000 +20000 =
105000
Interpretation: Tabular presentation shows that in the case of existing loader cost or
expenses account for $105000. Whereas, evaluation of new loader exhibits that cost associated
with the new loader is same as in the case of existing one $105000 significantly. Thus,
considering results it can be depicted that Flying Airlines can either continue with existing one or
replace the current from new. Both the concerned options will prove to be beneficial for flying
Airlines.
SITUATION 2
a. Stating whether Flying Airlines should use the alternative flight route with the stopover or not
On the basis of cited case situation, manager is planning to consider alternative in relation
to its flight from Sydney to Hawaii. Currently, the flight is non-stop but now manager thinks that
firm would become able to attract more passengers if it holds flight in Fiji. In this regard,
assessment of profit in both the concerned situations is as follows:
Non-stop flight Stoppage in Fiji
Particulars Figures (in $) Figures (in $)
Revenue:
Passenger revenue 240000 251000
Cargo revenue 80000 80000
Total revenue 320000 331000
Expenses:
Flight crew cost 2000 3400
Fuel 21000 26000
Meals and Services 4000 4900

Aircraft maintenance 1000 1000
Cost if flight will land in Fiji Nil 5000
Total expenses 28000 40300
Profit 292000 290700
Interpretation: The above depicted table presents that in the case of non-stop flight profit
margin accounts for $292000 respectively. In contrast to this, if stoppage of flight in Fiji will be
considered then expenses of business unit will be increased from $28000 to $40300 significantly.
Under alternative option revenue of Flying Airlines will incline from $320000 to $331000 but
due to having high expenditure profit margin accounts for $290700 respectively. Hence,
considering all such aspects it can be depicted that business unit should carry out operations with
the current arrangements such as non-stop flight rather than focusing on stoppage in Fiji.
Moreover, profitability is lower in the case of flight stoppage in Fiji so firm should avoid such
alternative option.
b. Stating other factors that should also be considered at the time of evaluation
Along with the financial aspects, in terms of revenue and expenses, manager should also
consider non-financial factor such as seasonal variations. Firm should also consider seasonal
aspects while making evaluation of revenue. Moreover, at the time of holidays and peak time
revenue increases significantly.
SITUATION 3
a. Presenting whether on the basis of spare capacity aspect tourist charter flight should be
considered or not
In accordance with case situation, if there is an existence of spare capacity then tourist
charter flight also should not be considered. Moreover, Occupancy level of round trip flight is
good and it is providing firm with high revenue such as $250000. Referring this, it can be
depicted that charter flight will not offer high benefits to Flying Airlines. Along with the

monetary aspect, Flying Airlines need to consider the extent of competition while doing
evaluation.
b. Stating profit when no spare capacity is considered
Profitability evaluation under different situations is as follows:
Particulars Charter flight Round-trip flight
Income / Receipt / Revenue
Revenue 160000 250000
Passenger revenue Nil 30000
Total revenue 160000 280000
Expenses:
Variable expenses of flight 85000 90000
Fixed costs allocated 80000 80000
Total expenses 165000 170000
Profit -5000 110000
Interpretation: By doing analysis or evaluation, negative profitability of $5000 has found
in the case of charter flight. On the other side, round trip flight offer profit margin of $110000
respectively. Hence, on the basis of financial grounds firm should not consider charter flight on
the place of round-trip. Moreover, attainment of higher margin is one of the main objectives of
firm, whereas in the case of tourist charter flight negative return has assessed. Thus, in the
absence of having spare capacity Flying Airlines should reject the offer of Japanese Tourist
agency (Garrison and et.al., 2010).
CONCLUSION
From the above report, it has been concluded that replacement option will do not offer
any significant financial benefit to Flying Airlines. Moreover, cost is similar in both the cases
such as replacement and current situation (existing loader). Along with this, it has been
articulated that Flying Airlines do not use the alternative flight route with the stopover due to

higher cost and low margin. Besides this, it can be inferred that, on the basis of financial grounds
that it should not accept offer presented by Japanese Tourist agency.