Tony Khoury, the Vice President Operations for the Flying Airlines - Management Accounting

Internal Code: MAS6482

Management Accounting:

Tony Khoury, the Vice President Operations for the Flying Airlines, has been approached by a Japanese Tourist agency about obtaining a special tourist charter flight from Japan to Hawaii. The tourist agency has offered the Flying Airlines $160,000 for a round-trip flight. Considering the airline’s usual airfares and occupancy the round-trip flight would provide revenue of $250,000. The cost and revenue data from usual Japan to Hawaii are as follows: Revenue Passenger revenue. Cargo revenue                                                                $ 30,000 Total revenue                                                                 $ 280,000 Expenses Variable expenses of flight                        $ 90,000 Fixed costs allocated                                                    $ 80,000 Total expenses                                                               $ 170,000 Profit                                                                               $ 110,000 Questions:  If the charter flight is accepted there will be no cargo revenue, but there will be a reduction of $5,000 in the variable costs due to savings in reservations and ticketing costs. A. If there is spare capacity should the special tourist charter flight be accepted purely on financial considerations? Are there any other factors that need to be considered? If so, please discuss. B. If there is no spare capacity and the tourist charter would have to take the place of an existing flight should it be accepted on financial grounds in these circumstances? Should any other factors be considered in these circumstances? If so, please discuss.