Question

As an analyst at Delta Airlines, you are asked to help the operations staff. Operations has identified a new method of loading baggage that is expected to result in a 35 percent reduction in labor time but no changes in any other costs. The current labor cost to load bags is $12 per bag. Other costs are $11 per bag.What the differential costs should the operations staff consider for the decision to use the new method next year? what would be the cost savings per bag using it?

Answer 1

1) The differential costs that the operations staff should consider are mentioned below:

- The 35% saving in lobar cost.

- The cost to deploy the new method.

2) The cost saving using it would be = $12*30%

= $3.6

The difference here between cost of two alternative choices or a reduction in the level of output is the marginal cost. The idea is used if you have multiple options and you have to choose one option and remove the remaining options.