Kirby Airlines is a small airline that occasionally carries overload shipments f

Question

Kirby 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 Jack 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 Kirby to carry the excess. Kirby contracts with independent pilots to fly its planes on a per trip basis. Kirby recently purchased an airplane that cost the company $5,500,000. The plane has an estimated useful life of 25,000,000 miles and zero salvage value. During the first week in January, Kirby flew two trips. The first was a round trip flight from Chicago to San Francisco, for which Kirby paid $350 for the pilot and $300 for fuel. The second flight was a round trip from Chicago to New York. For this trip, it paid $300 for the pilot and $150 for fuel. The round trip between Chacago and San Francisco is approximately 4,400 miles and the round trip between Chicago and New York is 1,600.

In addition to depreciation, identify three other indirect costs that may need to be allocated to determine the cost of each trip.

Explanation / Answer

Cost of Plane = $5.5M Life of Plane = 25M miles So Dep Rate = $5.5M/25M = $0.22 per Mile A.Identify the direct and indirect costs that Kirby incurs for each trip. Direct cost Are Pilot cost, Fuel Cost Indirect cost is Dep cost B.Determine the total cost of each trip. 1. Chicago to San Francisco : Total Dep = 4400Miles*$0.22 = $968 So Total Cost = Pilot Cost + Fuel Cost + Dep = 350+300+968 = $1,618 2. Chicago to New York : Total Dep = 1600Miles*$0.22 = $352 So Total Cost = Pilot Cost + Fuel Cost + Dep = 300+150+353 = $803 C.In addition to depreciation, identify three other costs that may need to be allocated to determine the cost of each trip. 1. Airport charges 2. Plane Maint cost 3. Loading & Unloading ie Ground Handling Support charges

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