The annual operating income that WSM can expect from this new service is $1686000.
<h3>How to calculate the income?</h3>
Sales revenue = 40 × 1400 × $225 = $12600000
Less: Cost
Flight related = 1400 × $1600 = $2240000
Passengers related = 40 × 1400 × $4 = $224000
Advertisement = 20 × 60000 = $1200000
Operating income = $1686000
The annual operating income that WSM can expect from this new service is $1686000
b1. Sales revenue = 42 × 1400 × $225 = $13230000
Less: Cost
Flight related = 1400 × $1500 = $2100000
Passengers related = 42 × 1400 × $4 = $235200
Advertisement = 20 × 60000 = $1200000
Operating income = $9694800
b2. I'll not recommend the company to adopt internal slaves ticket because the operating income is less.
c. Let the number of discount tickets be x.
Operating income = 1,700,000
Total revenue = (35000 × 250) + (x × 150)
= 875000 + 150x
The total cost is 10690000 + 140000 + 4x
This will then be:
8750000 + 150x - 10690000 + 140000 + 4x = 1700000
x = 25890 tickets.
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