Answer to Question #108822 in Accounting for Natalie Palmer

Question

A travel agency has offered to charter a flight from Perth to Sydney return for $50,000. Fracas Airlines would normally charge $100,000 for a Perth to Sydney return flight.

Expenses per flight are as follows;
VC per flight = $20,000
FC allocated to each flight = $35,000
(FC = $350,000, Fracas Airlines operates 10 flights).

Fracas Airlines has two aircraft which are presently not being used.
Should the offer be accepted?

Answer 1

Сharter Price:

$50,000

Less:

Variable Costs for the Charter:

-$20,000

Less:

Opportunity Cost:

-$80,000, $100 000- $20 000

Contribution from the Charter

-$50,000

Fracas Airlines should not accept the special order due to a negative contribution

margin.