A) Identifying the relevance of new proposal for special tourist charter flight if extra space capacity is not needed for the charter plane:
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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
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$ 170,000.0
|
|
Profit
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$ 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
|
|
Cargo revenue
|
$ -
|
|
Total revenue
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$ 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 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
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Particulars
|
Value
|
|
Passenger revenue
|
$ 160,000.00
|
|
Total revenue
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$ 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 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.
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.
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