4.4: Accounting in the Headlines

Last updated
Save as PDF

Page ID: 26057

$ \newcommand{\vecs}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } $ $ \newcommand{\vecd}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash {#1}}} $$\newcommand{\id}{\mathrm{id}}$ $ \newcommand{\Span}{\mathrm{span}}$ $ \newcommand{\kernel}{\mathrm{null}\,}$ $ \newcommand{\range}{\mathrm{range}\,}$ $ \newcommand{\RealPart}{\mathrm{Re}}$ $ \newcommand{\ImaginaryPart}{\mathrm{Im}}$ $ \newcommand{\Argument}{\mathrm{Arg}}$ $ \newcommand{\norm}[1]{\| #1 \|}$ $ \newcommand{\inner}[2]{\langle #1, #2 \rangle}$ $ \newcommand{\Span}{\mathrm{span}}$ $\newcommand{\id}{\mathrm{id}}$ $ \newcommand{\Span}{\mathrm{span}}$ $ \newcommand{\kernel}{\mathrm{null}\,}$ $ \newcommand{\range}{\mathrm{range}\,}$ $ \newcommand{\RealPart}{\mathrm{Re}}$ $ \newcommand{\ImaginaryPart}{\mathrm{Im}}$ $ \newcommand{\Argument}{\mathrm{Arg}}$ $ \newcommand{\norm}[1]{\| #1 \|}$ $ \newcommand{\inner}[2]{\langle #1, #2 \rangle}$ $ \newcommand{\Span}{\mathrm{span}}$$\newcommand{\AA}{\unicode[.8,0]{x212B}}$

What are potential cost drivers for an ABC system at Virgin America?

After several years of losses, Virgin America recently announced that it anticipates a profit for 2013. Although the company is expecting a profit for 2013, it still is not out of the woods. Critics have called for greater cost control at Virgin America.

The following table contains selected financial and other data for Virgin America for 2012.

Virgin America
Selected financial data
For Twelve Months Ended December 31, 2012

Partial income statement:	(000s omitted)
Operating revenues	$ 1,332,837
Other expenses:
Aircraft fuel	537,501
Aircraft rent	221,275
Wages and salaries	176,216
Aircraft maintenance	74,459
Landing fees	110,165
Sales and marketing	107,136
Guest services	50,448
Depreciation	11,260
Other	76,110
Total operating expenses	$ 1,364,570
Operating income/loss	$ (31,733)

Selected data:
Available seat miles (millions)	12,545
Departures	56,362
Aircraft in service	51
Guests (thousands)	6,219
Load factor (% of seats filled)	79.0%
Fuel gallons consumed (thousands)	161,404

Financial data source here.

Questions

For each of the expenses listed in the income statement, select a cost driver from the drivers listed under “Selected data.” Provide rationale for your choice of each of the drivers.
Are there any expenses you would group together into a single pool? Why or why not?
How could Virgin America use these cost pools and activity-based costing information internally?

What are potential cost drivers for an ABC system at Virgin America?. Authored by: Dr. Wendy Tietz, CPA, CMA, CGMA. Located at: http://www.accountingintheheadlines.com. License: CC BY-NC: Attribution-NonCommercial