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Management Accounting case study assignment - Essay Example

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In case of Condition 1, when Clearday operates by using rented airplanes from Plummet aviation then the total annual cost stands to £ 28000 as the total operating hours in a year is 400 and the rent paid is £70 per hour. In such case, Clearday does not have to incur any other…
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Management Accounting case study assignment
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Management Accounting case study assignment

Download file to see previous pages... Again there are additional costs related to hangarage, that is the shelter for the airplane and many related costs.
It is seen that fuel and handling charges are variable costs. And the other costs are fixed costs. The owning of the second hand plane also incurs depreciation charged. The depreciation is charged on a fixed rate method. After the calculation it is clearly visible that the owning of the plane would not be a good choice for the Clear day Co. the related expenses are much more in the case of owning than in the case of renting it. There is a big difference of £ 83900 in case of owning and renting it. So there fore it would not be beneficial for the company to go for the buy option. Rather the company should stick with the option of renting it as the annual expenses are much lower and are hassle free as the maintenance and other charges would have to be borne by Plummet Aviation.
In this situation the condition is the same of owning it but in this situation it can rent it to the local flying club, when they are not using it. It is estimated that, the local flying club would be using the airplane for a minimum of 120 hours in a year and the rent is fixed at £105 per hour. Thus, it is estimated that the Clearday would be making a sum of £12600 per annum. But again it is seen that if the airplane is given for rent then the maintenance cost and the insurance cost gets increased by 20% .
Thus, as earlier fuel and handling charges are variable in nature and in this case maintenance and insurance are semi variable costs while other are fixed cost. The depreciation charges remain the same. It is seen that though the Clearday is getting an extra income from renting the airplane, but the expenses are too high as compared to renting the airplane from Plummet Aviation. The difference is as high as £48080. But if in case the company compares between the option of whether renting ...Download file to see next pagesRead More
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