Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 12

Market Size and Share Variances Transpacific Airlines (TPA) budgeted 80 million passenger miles, or 5% of the total market for the year just completed, at a contribution margin of 40 cents per mile. The budgeted average price was 52 cents per passenger mile. The operating data for the year show that TPA flew 69.12 million passenger-miles with an average price of 48 cents per passenger-mile. The terrorist activity in the early part of the year in several countries in the region decreased the total miles flown by all airlines for the year by 10%. There is no flexible-budget variance for all costs.
Required
1. Assess the effects of price, sales volume, market size, and market share on the firm's operating results for the year.
2. Explain the risks posed by the global economic environment for TPA, and suggest strategies for mitigating those risks.