help on unit 6 short term decisions
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Hi 
i have a query with question 8.5 in the costing and reports workbook ,please can someone help me out ! question gives me amounts for direct materials, direct labour and direct expenses as well as a fixed cost . airline has a flight with 100 seats and sells 60 at £ 100 each , question asks me to find absorption cost per seat and marginal cost per seat and the profit or loss if no further seats are sold . DO i do sum for what the flight would make if all seats were sold and then do the 60 seat sum ?, also the question says i should consider two possibilities that 30 surplus seats are sold at £45 or that 40 seats are to be sold at £35 how do i equate for this as fixed costs have already been incurred with the original seats sold . It asks me to write a memo advising whether either of these possibilies should be considered and illustrate with a profit statement . how do i go about setting the profit statement up and what figures should appear on it ? really appreciate any help available , have been trying this question for ages and im just going round in circles . :?
i have a query with question 8.5 in the costing and reports workbook ,please can someone help me out ! question gives me amounts for direct materials, direct labour and direct expenses as well as a fixed cost . airline has a flight with 100 seats and sells 60 at £ 100 each , question asks me to find absorption cost per seat and marginal cost per seat and the profit or loss if no further seats are sold . DO i do sum for what the flight would make if all seats were sold and then do the 60 seat sum ?, also the question says i should consider two possibilities that 30 surplus seats are sold at £45 or that 40 seats are to be sold at £35 how do i equate for this as fixed costs have already been incurred with the original seats sold . It asks me to write a memo advising whether either of these possibilies should be considered and illustrate with a profit statement . how do i go about setting the profit statement up and what figures should appear on it ? really appreciate any help available , have been trying this question for ages and im just going round in circles . :? 0
Comments
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Re:help on unit 6 short term decisionsairline has a flight with 100 seats and sells 60 at £ 100 each , question asks me to find
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absorption cost per seat
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marginal cost per seat
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the profit or loss if no further seats are sold
DO i do sum for what the flight would make if all seats were sold and then do the 60 seat sum ?, also the question says i should consider two possibilities that 30 surplus seats are sold at £45 or that 40 seats are to be sold at £35 how do i equate for this as fixed costs have already been incurred with the original seats sold .
You have 100 seats to spread the overhead between.-
Marginal cost per seat is the total of all the variable costs of selling one seat
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Absorption cost per seat if 100 are sold is marginal cost per seat + total overhead divided by 100
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Then do a profit and loss account. If you decide on absorbing the overhead over the 100 seats you will have 40 x the absorption rate per seat that you have to include as under absorbed.
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The marginal cost profit is total contribution less fixed costs, and should give you the same profit as the previous 2 P&Ls
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The next 2 decisions are marginal cost decisions so do not affect the fixed cost - that has already been absorbed by the 60 seats already
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Look at the contribution each sale generates and multiply by the number of extra seats that will be sold under each alternative.
It is still posssible to buy airline tickets on this basis - at the last minute. Afterall, the plane will fly at xx o'clock irrespective of the number of occupied seats. So long as a last minute sale covers the marginal cost with a little bit of contribution it is worth having. It is contribution the airline would not have if it set off without that sale.
sandy.hood@chichester.ac.uk0 -
Re:help on unit 6 short term decisions
Thankyou so much, that has really helped me 0