Next week, Super Discount Airlines has a fight from New York to Los Angeles that will be booked to capacity. The airline knows f
1 answer:
Answer:
The cost of underestimating demand is considered a revenue loss that arises due to cancellation of flight costing $125. Hence, cost of underestimating the demand is, = $125 .
The cost of overestimating the demand is known as rewards. For example. free round trip ticket worth $250. Hence. cost of overestimating the demand. = $250 .
Denote the optimal probability of tickets not being sold by P. The expression is shown below:
P = 0.3333
Hence. the optimal probability that the tickets are not being sold is 0.33.
Apply the formula, NORMSINV (0.3333) in the Excel spreadsheet
The value of z is obtained as -0.4308. The negative value of z indicates that the number of seats to be overbooked must be less than an average of 25.
As per the stated question, an average of 25 customers cancel or do not show for the flight. Also the standard deviation is 15.
Calculate the number of seats by which company SD should overbook the flight.
= Value of z x Standard deviation
= -0.4308 x (15)
= -6.462
Subtract the value. 6 from the average customers that do not show up for the flight.
25 - 6 = 19 seats
Hence, the airlines should overbook the flight by 19 seats .
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Solution :
1. The break even sales in units is given by :
Break even sales in units =
Where, contribution per unit = selling price per unit - variable cost per unit
The anticipated break even sales in units of Cleaves company in the coming year is :
Break even sales in units =
Contribution per unit = $ 100 - $ 60
= $ 40
So the company anticipates its breakeven sales at 12,000 units.
2. In order tot earn profit the sales generated should overcome the breakeven point. The desired profit is $240,000, the sales required to earn the desired profit can be computed using the formula :
Desired sales in units =
= 18,000 units
Thus, the sales in units required to earn a profit of $ 240,000 are 18,000 units.
3. The sales in excess of the breakeven point would yield a profit on the contrary the sales below the breakeven point would result in a loss.
In the given sales in dollar = breakeven sales in units x selling price per unit
= 12,000 x 100
= $ 1,200,000
∴ the sales above $1,200,000 would result in a profit whereas the sales below $1,200,000 would result in loss.
The cost volume profit chart below indicates the profit, loss, breakeven at different sales levels :
Sales levels Result
1,200,000 Breakeven
1,000,000 Loss
800,000 Loss
400,000 Loss
200,000 Loss
4. The income on sale of 16,000 units is computed below :
Particulars Amount is $
Sales 1,600,000
Less : variable cost 960,000
Contribution 640,000
Less : Fixed cost 480,000
Profit 160,000