13.26.

Southeastern Airlines’s daily flight from Atlanta to Charlotte uses a Boeing 737, with all-coach
seating for 120 peo-ple. In the past, the airline has priced every seat at $140 for the one-way flight. An
average of 80 passengers are on each flight. The variable cost of a filled seat is $25. Aysajan Eziz, the
new operations manager, has decided to try a yield revenue approach, with seats priced at $80 for early
bookings and at $190 for book-ings within 1 week of the flight. He estimates that the airline will sell 65
seats at the lower price and 35 at the higher price. Variable cost will not change. Which approach is
preferable to Mr. Eziz?

Current model –-Single price at Southeastern Airlines

Sale = 80 passengers x (Net price/seat)

= 80 x ($140 - 25)

= $9,200

Proposed –two price points

Sales = 65 passengers x ( $80 - $25) + 35 passengers x ($190-$25)

= 65 x $55 + 35 x $165

= $3,575 + $5,775

= $9,350

13.19. Dwayne Cole, owner of a Florida firm that manu-factures display cabinets, develops an 8-month
aggregate plan.

Demand and capacity (in units) are forecast as follows:

CAPACITY

SOURCE (UNITS) JAN. FEB. MAR. APR. MAY JUNE JULY AUG.

Regular time 235 255 290 300 300 290 300 290

Overtime 20 24 26 24 30 28 30 30

Subcontract 12 16 15 17 17 19 19 20

Demand 255 294 321 301 330 320 345 340

The cost of producing each unit is $1,000 on regular time, $1,300 on overtime, and $1,800 on a
subcontract. Inventory carrying cost is $200 per unit per month. There is no beginning or ending
inventory in stock, and no backorders are permitted from period to period. Let the production
(workforce) vary by using regular time first, then overtime, and then subcontracting.

a) Set up a production plan that minimizes cost by producing exactly what the demand is each month.
This plan allows no backorders or inventory. What is this plan’s cost?
b) Through better planning, regular-time production can be set at exactly the same amount, 275 units,
per month. If demand cannot be met there is no cost assigned to shortages and they will not be filled.
Does this alter the solution?