Reference no: EM132562538

WSM Corporation is considering offering an air shuttle service between Sao Paulo and Rio de Janeiro. It plans to offer four flights every day (excluding certain holidays) for a total of 1,400 flights per year (= 350 days × 4 flights per day). WSM has hired a consultant to determine activity-based costs for this operation. The consultant's report shows the following:

ActivityActivity Measure (cost driver)Unit Cost (cost per unit of activity)Flying and maintaining aircraftNumber of flights$1,900per flightServing passengersNumber of passengers$5per passengerAdvertising and marketingNumber of promotions$54,000per promotion

WSM estimates the following annual information. With 20 advertising promotions, it will be able to generate demand for 40 passengers per flight at a fare of $240. The lease of the 60-seat aircraft will cost $4,800,000. Other equipment costs will be $2,400,000. Administrative and other marketing costs will be $1,300,000.

Question 1: Assume that WSM management decides not to adopt the Internet strategy, regardless of your answer to requirement (b). Instead, it is now considering a plan to sell tickets at two prices. An unrestricted ticket (good for travel at any time on any day) would sell for $ 265. A discount ticket, good for reservations made in advance, would sell for $125. Management estimates that it can sell 35,000 tickets (25 per flight) at the unrestricted airfare of $265. All other data remain the same.

Ignoring the information in requirement (b), how many discounted tickets would WSM have to sell annually to earn an operating income of $1,000,000? Assume that the annual number of flights remains at 1,400 and that the discounted tickets would be evenly divided across the 1,400 flights.