1. Coastal Airlines has a significant presence at the San Jose International Air

Question

1. Coastal Airlines has a significant presence at the San Jose International Airport and therefore operates the Emerald Club, which is across from Gate 36 in the terminal. The Emerald Club provides food and business services (e.g., data ports) for the company's frequent flyers. Management is exploring whether to close the club and expand the seating area for Gate 36. Which of the preceding expenses would the airline classify as unavoidable?

a.     sales commission (computed as a percentage of club revenue)

b.     catering cost in the Club

c.     receptionist and supervisory salaries of the Club

d.     airport fees (based on square footage)

2.In deciding on whether to keep or drop a segment, the segment should be kept as long as its contribution margin exceeds:

all costs.

all variable costs.

avoidable fixed costs.

allocated common costs.

Explanation / Answer

1. Airport fees (based on square footage use ) is unavoudable.

Reason: The airlines has to pay for the square footage used. The proposal of closinf the club and expansation of sitting area will requare the same square footage used by the company. Thus, the cost of airport fees is unavoidable.

2.The segment should be kept as long as its comntribution margin exceeds the all variable cost.

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