JetTaxi is a passenger airplane line that contracts with larger, well-known lines to provide transportation across the United States. JetTaxi owns 25 aircraft, and currently has contracts for 17 of those aircraft. The other lines pay JetTaxi $7,500,000 per year to provide carrier services for their passengers.
JetTaxi is considering a new contract where they would provide 10 airplanes to a new company for $5,500,000 per year. Each JetTaxi plane incurs yearly costs of $1,800,000 for labor, $600,000 for fuel, $1,200,000 in fixed overhead, and $2,400,000 in variable overhead. Contracts are for 20 years, which will not allow JetTaxi to use planes currently in use for new contracts. The cost of acquiring a new plane is $80,000,000, which is depreciated over the 20-year contract.
What would be the differential gain or loss on this contract?

Question

JetTaxi is a passenger airplane line that contracts with larger, well-known lines to provide transportation across the United States. JetTaxi owns 25 aircraft, and currently has contracts for 17 of those aircraft. The other lines pay JetTaxi $7,500,000 per year to provide carrier services for their passengers. 
JetTaxi is considering a new contract where they would provide 10 airplanes to a new company for $5,500,000 per year. Each JetTaxi plane incurs yearly costs of $1,800,000 for labor, $600,000 for fuel, $1,200,000 in fixed overhead, and $2,400,000 in variable overhead. Contracts are for 20 years, which will not allow JetTaxi to use planes currently in use for new contracts. The cost of acquiring a new plane is $80,000,000, which is depreciated over the 20-year contract.
What would be the differential gain or loss on this contract?

Quizplus · Accepted Answer

The Answer of JetTaxi is a passenger airplane line that contracts with larger, well-known lines to provide transportation across the United States. JetTaxi owns 25 aircraft, and currently has contracts for 17 of those aircraft. The other lines pay JetTaxi $7,500,000 per year to provide carrier services for their passengers. 
JetTaxi is considering a new contract where they would provide 10 airplanes to a new company for $5,500,000 per year. Each JetTaxi plane incurs yearly costs of $1,800,000 for labor, $600,000 for fuel, $1,200,000 in fixed overhead, and $2,400,000 in variable overhead. Contracts are for 20 years, which will not allow JetTaxi to use planes currently in use for new contracts. The cost of acquiring a new plane is $80,000,000, which is depreciated over the 20-year contract.
What would be the differential gain or loss on this contract?

JetTaxi Is a Passenger Airplane Line That Contracts with Larger