Purchase Solution

Cost Allocation For Airlines

Not what you're looking for?

Ask Custom Question

Jarmon Airlines is a small airline that occasionally carries overload shipments for the overnight delivery company Never-Fail, Inc. Never-Fail is a multimillion dollar company started by Peter Never immediately after he failed to finish his first accounting course. The company's motto is "We Never-Fail to Deliver Your Package on Time" When Never-Fail has more freight than it can deliver, it pays Jarmon to carry the excess. Jarmon contracts with independent pilots to fly its planes on a per-trip basis. Jarmon recently purchased an airplane that cost the company $24,000,000. The plane has an estimated useful life of 100,000,000 miles and a zero salvage value. During the first week in January, Jarmon flew two trips. The first trip was a round trip flight from Chicago to San Francisco, for which Jarmon paid $500 for the pilot and $350 for the fuel. The second flight was a round trip from Chicago to New York. For this trip, it paid $300 for the pilot and $150 for fuel. The round trip between Chicago and San Francisco is approximately 4,400 miles and the round trip between Chicago and New York is 1,600 miles.

A. Identify the direct and indirect costs that Jarmon incurs for each trip.

B. Determine the total cost of each trip.

C. In addition to depreciation, identify three other indirect costs that may need to be allocated to determine the cost of each trip.

Please help and explain everything. Thank you.

Purchase this Solution
Solution Summary

This solution discusses and illustrates direct and indirect cost allocation for trips taken by an airplane.

Solution Preview

A. The direct costs of each flight are the costs directly allocable only to that flight. In these cases, the pilots' fees and the fuel costs are direct costs. The indirect costs are costs which are paid to generally operate a business, but which benefit the projects as well. These costs can be pinpointed to a particular project, so they are ...

Purchase this Solution
Free BrainMass Quizzes
Motivation

This tests some key elements of major motivation theories.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

Basics of corporate finance

These questions will test you on your knowledge of finance.

Introduction to Finance

This quiz test introductory finance topics.

View More Free Quizzes
Related BrainMass Solutions

  • P6-6 Allocating Service Department Costs for World Airlines

    364606 P6-6 Allocating Service Department Costs for World Airlines World Airlines has three service departments: (1) ticketing, (2) baggage handling, and (3) engine maintenance.The service department costs are estimated for separate cost pools formed

  • Income Statement for Full & Variable Costing

    For the two remaining cost pools, I would like to suggest allocation of cost based on tickets issued and number of bags handling.

  • implementation plan for Southwest Airline

    and deadlines, tasks and task ownership and resource allocation for Southwest Airline The implementation plan that will be implemented is Southwest Airlines 737 Health Management System or better known as Boeing's Airplane Health Management (AHM).

  • Boeing: Paid media objectives and execution

    • Persuade CEOs of Chinese airlines, Air Canada, Alaska Airlines, Delta, and United to place orders for 737 MAX 10 because of lower trip costs • Create awareness of technological superiority and cost savings of 737 MAX among 58 US airlines.

  • Strategy Implementation & Leadership

    Leader is responsible to test the strategies, allocation of resources, formulation of functional policies and planning for operational effectiveness.

  • When are estimated costs and cost per unit needed? Better?

    Southwest and other airlines must use allocation and averaging to determine the estimated cost of providing transportation services to customers. Estimated rather than actual cost is used for decision-making purposes.

  • Low Fares Airlines

    Discount fare means that the airlines has lower fares and fewer comforts to make up for revenue lost in lower ticket prices (1). The airlines usually charges extras such as food, priority boarding, seat allocation, and baggage.

  • Farragut, Inc. activity-based costing fixed variable costs

    Compute the cost allocation rate for each activity. 2. Compute the indirect manufacturing cost of each bumper.

  • Dropping or Retaining Flights

    for flight crew and assistants - 900 and 14,100 Net decrease in profits if the flight is discontinued - $9,300 The following costs are not relevant to the decision: Cost Reason Salaries, flight crew Fixed annual

View More Related Solutions