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Kirby Airlines

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P12-16 Kirby Airlines is a small airline that occasionally carries overload shipments for the overnight
delivery company Never-Fail, Inc. Never-Fail is a multimillion-dollar company started by Jack
Never immediately after he failed to finish his first accounting course. The company’s motto is
“We Never-Fail to Deliver Your Package on Time.” When Never-Fail has more freight than it
can deliver, it pays Kirby to carry the excess. Kirby contracts with independent pilots to fly its
planes on a per-trip basis. Kirby recently purchased an airplane that cost the company

The plane has an estimated useful life of 25,000,000 miles and a zero salvage value.
During the first week in January, Kirby flew two trips. The first trip was a round trip flight from
Chicago to San Francisco, for which Kirby paid $350 for the pilot and $300 for fuel. The second
flight was a round trip from Chicago to New York. For this trip, it paid $300 for the pilot and
$150 for fuel. The round trip between Chicago and San Francisco is approximately 4,400 miles
and the round trip between Chicago and New York is 1,600 miles.


a. Identify the direct and indirect costs that Kirby incurs for each trip.

b. Determine the total cost of each trip.

c. In addition to depreciation, identify three other indirect costs that may need to be allocated
to determine the cost of each trip.

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