Question

(Question 1 - 12 marks) probability distribution TI/(NI*(T-N)!) *pºn * (1-2)^(t-n) ABC flies helicopters during fire season. The company charges $500/hr of flight time. The company flies 180 days from March through September at an average of 10 hrs/day. Costs of flight are $150/hr for fuel, $100/hr. for overhaul and $50/hr. for pilot proper The company flys 3 helicopters and has one waiting in reserve. The company cannot sell its spare helicopter as there is no ready market for this asset If a plane breaks down the company must rent another at a cost of $2,400 per day plus operating costs OPTIONS The company is deciding whether to cancel this contract and take one that pays $510/hr of flight time for 180 days and operates 3 helicopters and would also have one in reserve. Operating costs are the same. If a plane breaks down the company cannot rent another. It will lose profits And must pay the pilots a $25/hour standby charge The company expects each plane to be broken down for major overhaul 36 days during the summer. Prepare operating income statements for the two options Advise the company on the options

Answer 1

Operating Income
	Plan 1		Plan 2
Reveune	500*10*180*3	$27,00,000	510*10*180*3	$27,54,000
Expenses
Fuel	150*10*180*3	$8,10,000	150*10*180*3	$8,10,000
Overhaul	100*10*180*3	$5,40,000	100*10*180*3	$5,40,000
Pilot	50*10*180*3	$2,70,000	50*10*180*3	$2,70,000
Break Down cost	(2400*36)+((150+100+50)*10*36*1)	$1,94,400	(510-(150+100+50)*10*36*1)+(25*10*36)	($98,490)
Operating Income		$8,85,600		$12,32,490
Option one is more better because Operating income is greater than Option 2