Team project of Job Order Costing

Submitted to: Prof. Ahsin Qasim

Submitted By:
Afroze Muhammad sufiReg# 14
Umara AbdulazizReg# 20
Aafreen MasoodReg# 32
Ahnif Sajid Reg# 35

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Table of Contents
Requirement # 1
3
Total cost of flight 1247 of Delta Airlines
Total cost, Revenue, Profit
Requirement # 2

Total cost of flight 53 of JetBlue Airlines

Total cost, Revenue, Profit
Requirement # 3

Evaluation of Four Strategies

Requirement # 4

Analysis of data

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Bibliography
10

Cost Accounting| Job order costing

Keep in mind the

constraints regarding
this data as the first
requirement of deltas
current profit
calculated on:

1. 100% load factor

(that may not be
possible always)
2. The only one
flight of $102 is
considered here.
And delta has
about 15000
flights approx.

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Requirement # 1 Use the data to determine the

following for Delta:
Part (a) The total cost of flight 1247, assuming
a full plane (100%)
Solution:
Total cost
Cost of flying full load plane for 1000 miles
(1000*0.084*142) =$ 11928
Cost of meal
Total Cost

(142*10) =$ 1420
= $13,348

Part (b) The revenue generated by flight 1247,

assuming a 100 % load factor and average
revenue per one-way ticket of $102
Solution:
Total Revenue

(102*142) = $ 14484

Part (c) The profit per flight 1247

Solution:
Profit = Total revenue Total Cost
14,484 13,348 = $ 1136

Cost Accounting| Job order costing

Same is the case here

with jetblue airline.
Constraints of 100%
load factor and flight
53 is not applicable on
each time. jetblue also
has about 800 planes
with 85 destinations in
the world.

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Requirement # 2 Use the data to determine the

following for JetBlue.
Part (a) The total cost of flight 53, assuming a
full plane (100%) load factor.
Solution:
Total cost
Cost of flying full load plane for 1000 miles
(1000*0.053*162) = $8586
Cost of snacks

(5*162) = $ 810

Total Cost

= $9396

Part (b) The revenue generated by flight 53,

assuming a 100 % load factor.
Solution:
Total Revenue

75*162 = $12150

Part (c) The profit per flight 53

Solution:
Profit = Total revenue Total Cost
12150 9396 = $2754

Requirement # 3 Based on the responses to

Requirement 1 and 2, carefully evaluate each
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of the four alternative strategies discussed in

Deltas executive meeting.
Solution:
Following are the four suggestions
1. Suggestion to do nothing
The Vice President of operation suggested
doing nothing We just need to wait until
these new airlines run out of money. They
cannot be making money with their low
fares
Comment on this suggestion:
It is better sometimes to
do nothing instead of
doing something,
especially if that
something is ill advised
or expensive. But in this
case there are lots of
options than doing
nothing.

The Vice President is pessimist about the better

operation of Delta airlines and the suggestion
given by him is an unrealistic.
2. Suggestion to low flight fares
The Vice President of marketing, not
wanting to lose market share, suggests
cutting Deltas fares to match the
competition.
Comment on the suggestion:

The price of your ticket

consists of a number of
things.

Base fare
Taxes and airport
fees
Fuel surcharge
Service fee to
issue
Food
Seat selection
Baggage

By keeping this in mind

Cutting fare price with no change in costs will

reduce the revenue yielding low profit. This
suggestion is also not acceptable in long run.

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3. Suggestion for cutting cost

CFO emphasized the potential for cutting
costs.
Comment on the suggestion:
This is a good suggestion. Cutting cost will help
in increasing profit. Delta can decrease/ reduce
its costs by adopting follow techniques.

The companies
continue to replace old
and depleted airplanes
with new and upgraded
ones. Though initially
expensive, new and
improved aircraft are
more fuel efficient than
the existing ones and
will help in lowering
operating and

A. Fuel Hedging.
B. Use only one kind of plane (this will reduce
maintenance and as well as training cost)
C. Use smaller underutilized airports (big
airports command high fees because there
is demand of so many airlines to use it)
D. Use single class seating (as this will reduce
the number of crew members required per
flight and simplifies the design of interior of
plane)
E. Direct ticket selling through own websites
or at the ticket counter (reduce cost by
elimination of middle man)

In October,Delta Air
Lines Inc. has
announced its plan to
purchase 40 new jets
from European aircraft
manufacturer Airbus in
a deal worth $5.6 billion.
Jet Renovation: With
passengers demanding
comfort and quality
service along with
proper security, airlines
are focusing on aircraft

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"We previously noted

that low-fare carriers
represent the greatest
competitive threat to
Delta," Leo Mullin, the
airline's chairman and
CEO, said during a
Nov. 20 press briefing
to unveil the plans.
"Delta intends, through
the actions announced
today, to meet the lowfare carriers head on."

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4. Suggestion for starting a new airline

Another possibility is starting a new budget
airline within Delta
Comment on the suggestion:
Starting new budget airline within Delta needs
a detailed planning and involves higher risk.
There is also the possibility that new airline
fails in making profit and Delta suffers
complete loss. So, this suggestion being
highly risky but can be acceptable.
Delta Group Cayman recently announced its
continued expansion with the launch of a
Fiduciary Services subsidiary,
Delta said it will launch a low-cost subsidiary
early next year with an all-coach 757 fleet, initial
service in Delta's Northeast-Florida markets,
one-way fares that top out at $299 and
aggressive cost-control that includes a major
focus on direct sales.
The wholly owned subsidiary initially will serve
established Delta Northeast-Florida

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Requirement # 4
The analysis in this project is based on
several simplifying assumptions. As a
team, brain storm factors that your
quantitative evaluation does not include,
but that may affect a comparison of Deltas
operations to budget carriers.
Solution:
Given below points can help Delta improve its
operations
A. Utilize linear routes structures with one
aircraft type.
B. Improve turnaround time of airplanes.
C.Serving meal in 3 hrs flight when all other
airlines are offering snacks.
D.Fuel hedging contracts with suppliers.
E. Retire old low capacity and less fuel efficient
aircrafts.
F. Use efficient information system that allows
their passengers to reserve seats and buy tickets
a week or even a month before. And keep track
of every passengers flying detail to provide
frequent flyer discounts.

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G. Boarding time and introduce online check in

for passengers.
H. Labor and security costs.
I. Use of only one kind of planes so the airline
does not have to buy different parts for different
planes. This will reduce maintenance, repair and
also pilot's cost as the airline does not have to
train their pilot for all kind of planes.
J. Partnership with different hotels and car
rentals to provide customer an extra facility.
K. Travel agents who are working from home will
reduce the overhead cost of airline.
L. Make passenger chose the kind of food
he/she likes to be served in flight, through online
means, this will transfer the food cost back to the
passenger.
M. Make employee contracts as HR Processes
(recruiting, selecting and training) cost can be
humongous for airlines.
N. Allow employees to access top management
anytime and empower employees to make
customer services decision to some extent this
will develop a sense of freedom in them and will
provide good services.
O. Some people also value more comfort than
money so delta is best for those.

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Bibliography
http://money.howstuffworks.com/personal-finance/budgeting/budgetairline4.htm
http://articles.economictimes.indiatimes.com/2014-0302/news/47799779_1_lowest-fares-last-minute-fares-spicejet
http://www.deltagroup.ky/2014/03/delta-continue-expansion-withlaunch-of-fiduciary-services-subsidiary-delta-fs/
http://news.delta.com/index.php?s=20308
http://www.travelweekly.com/Travel-News/Airline-News/Delta-plans-tolaunch-low-cost-subsidiary/
https://book.jetblue.com/B6/webqtrip.html?
_flowExecutionKey=_c7FD5167E-8404-2ABE-F2C79C78356CC665_kA5F49CA4-D43F-43FB-A96E-6DF9F9A00F35
http://www.seatguru.com/airlines/JetBlue_Airways/JetBlue_Airways_Airb
us_A320.php
http://en.wikipedia.org/wiki/JetBlue
https://flightfox.com/tradecraft/how-do-airlines-set-prices
http://www.prnewswire.com/news-releases/zacks-industry-outlookhighlights-boeing-embraer-delta-air-lines-jetblue-airways-and-unitedcontinental-235393701.html
http://www.slideshare.net/askurdal/delta-airlines-business-strategy
http://www.slideshare.net/friscalistya/service-recovery-jet-blue-lion-air

Cost Accounting| Job order costing