Cost Analysis Of Operational Decision Making For Flying Airline Company

Replacing Old Loader

The above table mainly helps in understanding different cost structure, which is presented to the Flying Airline Company. However, the decision needs to be conducted by the management regarding the implementation of new loader or utilising the old loader. The difference in differential cost between old loader and new loader is depicted in the above table, where the use of new loader is more beneficial for the Flying Airline Company. From the use of old loader, the Flying Airline Company will mainly incur a total operating cost of $105,000. On the other hand, implementation of new loader could directly reduce the operation cost to $90,000, which is lower than previously operating cost. Hence, Flying Airline Company could directly utilise the opportunity to use new loader, as it will substantially decline the cost incurred by the company. This decline in differential cost could directly allow the organisation for generating higher revenue from its operations due to decline in actual cost. Ax and Greve (2017) mentioned that organisation with the help of cost analysis are able to identify ways in which actual expenses incurred from operation could be reduced for increasing their revenue.

From the implementation of new loader, the Flying Airline Company will save $15,000, which could directly boost profits of the organisation. Therefore, from the evaluation it could be understood that use of new loader could allow Flying Airline Company to reduce its actual cost and generate income in the long run. 

The above table mainly helps in identifying the benefits and revenue that will be generated from non-stop and with-stop route. The financial performance of the company will mainly decline if the with-stop route is taken by the company. The net income generated by with-stop route is 290,700, while the non-stop route will generate 292,000, which has a differential cost of $1,300. This difference in cost is high, which will decline the actual revenue previously conducted by the company. Therefore, it could be estimated that the company by not implementing an additional route and maintaining their current non-stop route might help in generating higher revenue. In this context, Chenhall and Moers (2015) mentioned that with the use of differential cost analysis, organisation is able to evaluate financial significance of different decisions. However, from the evaluation a miniature difference in revenue could be identified from the two calculation, where the company could utilise revenue for adding more routes in its operations.

Adding New Routes

Therefore, two different factors, which could be considered in making adequate investment decision for Flying Airline Company. The two factors needed for the evaluation is Social and Economic factor, which could allow the company in making investment decision. In addition, the evaluation of economic factor could directly allow the company in identifying the financial benefits, which could be obtained from customers. Furthermore, the evaluation of purchasing power of customers could directly help in identifying different ways of revenue, which could be generated from the flight patterns. Moreover, the social factor of on-route destination could also be evaluated, which could help in depicting the trend of customers (Cooper, Ezzamel and Qu 2017). This evaluation could help in specifically targeting the customer and generate revenue anticipated in the case.

Situation 3 depicted in the above table mainly helps in identifying the revenue opportunity, which could be generated from New Special Tourist Charter Flight. However, from the evaluation it could be understood that if there is space for the charter flight then the profits generated from the New Special Tourist Charter Flight is $75,000. On the other hand, the actual revenue that is generated from the operation is $110,000, which is not achievable due to the special order package provided to Flying Airline Company. Hence, the Flying Airline Company can accept the offer of New Special Tourist Charter Flight, as it could help in generating higher revenue for the company. The fixed cost is mainly at zero, which is directly increasing profitability of the company from implementation of New Special Tourist Charter Flight.

The above calculation indicates extra cost incurred by the company, where there is no spare space available to Flying Airline Company for the new offer. In this case, the company needs to incur additional cost of $80,000, which could increase the actual total expenses from the new offer. This increment in the total expenses could directly affect the profitability, which was previously earned from the new operation (Otley 2016). Hence, if the company has extra space then it could accept the new offer, while the absence of spare space could force the company to incur loss. 

Reference and Bibliography:

Ax, C. and Greve, J., 2017. Adoption of management accounting innovations: Organizational culture compatibility and perceived outcomes. Management Accounting Research, 34, pp.59-74.

Chenhall, R.H. and Moers, F., 2015. The role of innovation in the evolution of management accounting and its integration into management control. Accounting, Organizations and Society, 47, pp.1-13.

Cooper, D.J., Ezzamel, M. and Qu, S.Q., 2017. Popularizing a management accounting idea: The case of the balanced scorecard. Contemporary Accounting Research.

Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2014. Lean manufacturing and firm performance: The incremental contribution of lean management accounting practices. Journal of Operations Management, 32(7), pp.414-428.

Otley, D., 2016. The contingency theory of management accounting and control: 1980–2014. Management accounting research, 31, pp.45-62.

Renz, D.O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John Wiley & Sons.