Management Accounting Report: Flying Airline Company Proposal

This report provides a comprehensive financial analysis of a proposal for Flying Airline Company regarding a new special tourist charter flight. The analysis evaluates the viability of the proposal under two scenarios: one where extra space capacity is not needed and another where it is required. The report assesses passenger and cargo revenue, variable and fixed expenses, and calculates the resulting profit or loss for each scenario. It references relevant accounting literature and considers the implications of accepting or rejecting the proposal, including its impact on the company's financial stability and potential for long-term revenue. The report highlights the importance of cost analysis and differential costing in making informed financial decisions, ultimately recommending whether the airline should accept the proposal based on its potential profitability and impact on the company's overall financial performance.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Situation 3: Identifying viability of the proposal for Flying Airline Company.........................2
A) Identifying the relevance of new proposal for special tourist charter flight if extra space
capacity is not needed for the charter plane:..............................................................................2
B) Identifying the relevance of new proposal for special tourist charter flight if extra space
capacity is needed for the charter plane:200..............................................................................4
Reference:..................................................................................................................................6

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Situation 3: Identifying viability of the proposal for Flying Airline Company
A) Identifying the relevance of new proposal for special tourist charter flight if extra
space capacity is not needed for the charter plane:
Particulars Value
Passenger revenue $ 250,000.0
Cargo revenue $ 30,000.0
Total revenue $ 280,000.0
Variable expenses $ 90,000.0
Fixed cost $ 80,000.0
Total expenses $ 170,000.0
Profit $ 110,000.0
The evaluation of above table mainly helps in identifying the total revenues that is
normally provided by the flight. Total revenue of $280,000 is mainly achieved from the
current flight pattern, where $250,000 is accumulated from passenger revenue and $30,000 is
achieved from cargo revenue. There are different types of expenses is incurred if normal
flights are conducted, where variable expenses of $90,000 and fixed expenses of $80,000 is
directly deducted from the total revenue obtained why the flights. This will provide a total
expense of $170,000 incurred by the organization for continuing with normal flights. in this
context, Cooper (2017) stated that management needs to evaluate financial viability of a
proposal before accepting it, as it might hamper future existence of the organization.
Particulars Value
Passenger revenue $ 160,000.0

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Cargo revenue $ -
Total revenue $ 160,000.0
Variable expenses $ 85,000.0
Fixed cost $ -
Total expenses $ 85,000.0
Profit $ 75,000.0
The evaluation of the above table mainly helps in gauging into the pros and cons of
third situation, which could allow Flying Airlines Company to take adequate financial
decision. The proposal provided to Flying Airline Company can be identified from the above
table where relevant calculations are conducted can detect its viability. from the calculation
of profit of $75,000 can be achieved by the company if the proposal is accepted. However,
there are certain amendments to the proposal, where the company does not incur fixed
expenses and cargo revenue. The decline in cargo revenue was mainly compensated with the
omission of fixed cost incurred from the relevant operation. This is mainly increased viability
of the new proposed, which would allow the flying airline company to generate revenue from
the operation. The New Special Tourist Charter Flight provides an additional income to the
organisation only if adequate spaces provided for the charter plane. Lanen (2016) mentioned
that companies conducting through cost analysis would eventually help in identifying
loopholes in the operations. On the other hand, Klychova et al. (2014) argued that with the
use of differential costing organizations cannot detect viability of the proposals but are not
able to accommodate negative impact from external forces.
The New Special Tourist Charter Flight could directly allow Flying Airline Company
to obtain a profit of $75,000 from its operation. In addition, accepting the overall proposal
could also help the flying Airline Company to build long term financial relationship with the

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tourist company presenting the proposal. However, accepting the proposal could eventually
decline the actual revenue that was portrayed in normal circumstances. This decline in
revenue does not matter if the tourist company provides constant orders for charter plane,
which could in turn help in boosting long term revenue. According to Messner et al. (2016),
companies can use different budgeting system to support its activities and detect overall
changes and expenses, which food help in increasing total revenue. Hence, the Flying Airline
Company adequately accept the proposal for the new tourist charter route, as it helps in
increasing revenue and financial stability of the organization.
B) Identifying the relevance of new proposal for special tourist charter flight if extra
space capacity is needed for the charter plane:200
Particulars Value
Passenger revenue $ 160,000.00
Total revenue $ 160,000.00
Variable expenses $ 85,000.00
Fixed cost $ 80,000.00
Total expenses $ 165,000.00
Loss $ (5,000.00)
After the evaluation of above table relevant incapability of the proposal can be
identified, which could directory result in rejecting the over proposal solely on finance
perspective. The proposal is only viable if the Flying Airline Company has extra space to
accommodate a new charter plane, as this declines the overall extra fixed cost. The previous
profitability incurred by the company, due to the availability of space is directly nullified by
adding extra fixed cost $80,000. Hence, from evaluating the above calculation it could be

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identified that any extra fixed cost incurred by the organization could eventually lead to loss.
Thus, the flying airline company could reject the overall proposal for the new charter tourist
route, as it might hamper its future profitability and financial stability (Cooper 2017). Lastly,
if relevant space is present to the organization then accepting the proposal is adequate, as it
might help in improving profitability and create long term professional relationship.

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Reference:
Cooper, R., 2017. Supply chain development for the lean enterprise: interorganizational cost
management. Routledge.
Klychova, G.S., Faskhutdinova, М.S. and Sadrieva, E.R., 2014. Budget efficiency for cost
control purposes in management accounting system. Mediterranean journal of social
sciences, 5(24), p.79.
Lanen, W., 2016. Fundamentals of cost accounting. McGraw-Hill Higher Education.
Messner, M., Becker, A., Schäffer, U. and Binder, C., 2016. Struggles for legitimacy and
identity: the development of Germanic management accounting research. Research Gate,
pp.1-38.