DASH Airlines Is Considering the Addition of a Flight from Red

question 88

Multiple Choice

DASH Airlines is considering the addition of a flight from Red Cloud to David City. The total cost of the flight would be $1,100, of which $800 are fixed costs already incurred. Expected revenues from the flight are $600. DASH should

• A) not add this flight, because only flights that cover their full costs are profitable.
• B) not add this flight, because it is not profitable at the margin.
• C) add this flight, because marginal revenue exceeds marginal costs and total revenue exceeds total variable cost.
• D) not add this flight, because total costs exceed total revenue.

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Definitions:

Capital Investment

Funds invested in a firm or enterprise for the purposes of furthering its business objectives.

Internal Rate

Refers to the rate of growth a project is expected to generate.

Return Method

A sales return approach where the selling price of returned goods is deducted from gross sales to calculate net sales.

Capital Investment Analysis

The process by which management plans, evaluates, and controls long-term capital investments involving property, plant, and equipment.