Accounting

This report will be classified in three main sections.  First financial information pertinent to the present operating income on per one-way flight basis will be provided.  This will be followed by a financial examination of the effect of the decrease in fare selling price as suggested by the market research department.  A relevant costing analysis will also be conducted at the latter section of this paper on the charter offer provided by Travel International.  Such offer will be analyzed both on qualitative and financial aspects.

1. Operating Income per one-way flight
Sales Revenue     (325 x 175)                56,875
Variable Costs
Fuel Costs                        14,000
Food and Beverage Costs (4 x 175)            700
Commission (56,875 x 10)            5,688
Operating Income                    36,487
2. Sales Revenue (280 x 212)            59,360
Variable Costs
Fuel Costs                        14,000
Food and Beverage Costs (4 x 212)            848
Commission (59,360 x 10)            5,936
Operating Income                    38,576
The operating income per one-way flight will increase by 2,089 if the price is reduced as instructed by the market research department.  Such rise indicates that this action is financially feasible for the organization.
3.                                                  
Additional Revenue from Travel (75,000 x 24)            1,800,000
Lost Contribution from lost sales (36,487 x 24)            (875,688)
Incremental Income                            924,312
Financially the charter offer of Travel International is viable, because it will generate an additional income of 924,312 if undertaken.  However, management should also consider qualitative characteristics before proceeding in its acceptance.  For instance, the reduction in the number of flights may negatively affect the image of the company in the market.  Client may switch to other competitors and commence negative word of mouth advertising.  In addition, the reduction in such flights may provide asymmetric information that the company is not operating well and customers may think that it will cease operations soon.  This will further diminish its respective market share.