Job Costing: How to Calculate the Cost of a Job

1. Determining of the following for Delta;

1. The total cost of Flight 1247, assuming a full plane (100%)

Total cost= Food and Beverage costs+ extra costs

Food and Beverage:

Number of meals × Cost per meal

142 seats × $ 10 =$ 1,420

Costs other than food and beverage:

Number of available seat miles × Cost per seat mile

(142 seats ×1000 miles) ×$ 0.084

142000 seat miles × $ 0.084=$ 11,928

Total Cost of Flight 1247= ($ 1,420+ $ 11,928) =$ 13,348

2. The revenue generated by Flight 1247, assuming a 100% load factor and the average revenue per one-way ticket of $102

Revenue=Number of seats × Average revenue per seat

142 seats × $ 102 = $ 14,484

3. The profit per Flight 1247, given the responses to a and b

Profit=Revenue-

$ 14,484-$ 13,348=$ 1,136

2. Using the data to determine the following for JetBlue:

1. The total cost of Flight 53 assuming a full plane (100% load factor)

The total cost of Flight 53 = Food and Beverage costs + other extra costs

Food and Beverage costs:

Number of snacks × Cost per snack

162 seats × $ 5 = $ 810

Other costs other than food and beverage:

Number of available seat miles × Cost per seat mile

(162 seats × 1000 miles) × $ 0.053

162000 seat miles × $ 0.053 = $ 8,586

2. The revenue generated by Flight 53, assuming a 100% load factor and average

Revenue per one-way ticket of $102

Revenue= Number of seats × Revenue per seat

162 seats × $ 75.00 = $ 12,150

3. The profit per Flight 53, given the responses to a and b

Profit=Revenue- Cost

$ 12,150-$ 9,396=$ 2,754

3. Based on the responses to Requirements 1 and 2, carefully evaluate each of the four alternative strategies discussed in Delta’s executive meeting.

1. By doing nothing but waiting for the new airlines to run out of money.

Even with JetBlue’s low airfare of $75 it makes profits of $ 2,754 that is despite its lower charges. Therefore, this data disagrees with the vice presidents opinion that JetBlue cannot continue being in operation. On the other hand, Delta gains lower profits compared to JetBlue $ 1,136. In this context, the vice presidents concern is the loss of market portion that might result due to failure to match the competition by offering lower ticket prices like other carrier’s. Therefore, doing nothing is not a wise idea.

2. Reducing ticket charges to match the competition.

Assuming Delta matches JetBlue’s fare charges:

Revenue= Number of seats × Revenue per seat

142 seats × $ 75.00 = $ 10, 650

The revenue of flight 1247 would drop from $ 14,484 to $ 10, 650, which means costs incurred would be more than revenues resulting in a loss. Delta offers a variety of airfares as well as some close enough to the commercial carriers.

3. Launching a new budget airline

It could be a suitable tactic especially if Delta finds it problematic to cut the cost. However, for this plan to work, the new airline should operate at prices lower than Delta’s current charges. Also, Delta would put into consideration how the new airline would affect their business. The change requires extensively more analysis.

4. Instituting a program that cuts cost

($ 13,348- $ 9,396) / $ 9,396 × 100 = 42%

The product above indicates Delta’s aggregate expenses are greater than JetBlue’s by approximately 42%. It suggests that there is room for Delta to cut its charges. The approach would enable Delta to maximize profits and compete with airlines with lower airfares.

4. The analysis in this project is based on several simplifying assumptions. As a team, brainstorm factors that your quantitative evaluation does not include but that may affect a comparison of Delta’s operations to budget carriers.

The assumptions comprise of;

1. 100% load factor on each airline

Load factors are different amid airlines; thus this concept is not likely to hold. If Delta has a more significant factor compared to JetBlue, Delta would have higher chances of being more profitable than JetBlue.

2. Price is the only element the airline compete on

3. Numerous features attract customers to an airline. For instance, factors such as excellent customer service could entice customers to JetBlue. On the other hand, some customers may go for Delta if their seats are more comfortable than JetBlue.

4. Each seat filled by an airline earns the same revenue

For instance, all calculations for Delta use a single price of $102. Nonetheless, despite this scenario, this airline offers a range of ticket prices. This means Delta could make an effort to sell seats with higher charges.

5. Some factors may have a significant impact such as time of flights and the routes the airlines offer.