Question

Zachary 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 Wes 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 Zachary to carry the excess. Zachary contracts with independent pilots to fly its planes on a per-trip basis. Zachary recently purchased an airplane that cost the company $4,636,000. The plane has an estimated useful life of 24,400,000 miles and a zero salvage value. During the first week in January, Zachary flew two trips. The first trip was a round trip flight from Chicago to San Francisco, for which Zachary paid $420 for the pilot and $370 for fuel. The second flight was a round trip from Chicago to New York. For this trip, it paid $370 for the pilot and $185 for fuel. The round trip between Chicago and San Francisco is approximately 4,300 miles and the round trip between Chicago and New York is 1,300 miles.
Required:a. Select if the costs mentioned below are direct or indirect.b. Determine the total cost of each trip. (Do not round intermediate calculations.)

Answer 1

Answer: See explanation

Explanation:

a. Based on the information given, the direct costs are:

• Pilot Cost

• Fuel Cost.

The indirect cost is:

• Depreciation Cost

b. To know the total cost for each trip, we need to know the depreciation per mile which will be:

= $4,636,000 / 24,000,000

= 0.19

Cost for Trip 1

Pilot Cost = $420

Fuel Cost = $370

Depreciation Cost = (0.19 × 4,300) = $827

Total Cost = $1617

Trip 2

Pilot Cost = $370

Fuel Cost = $185

Depreciation Cost = (0.19 × 1,300) = $247

Total Cost = $802