Act 505 Case Study 2

In: Business and Management

Submitted By pito321
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Case Study 2
Springfield Express is a luxury passenger carrier in Texas. All seats are first class, and the following data are available:
Number of seats per passenger train car 90
Average load factor (percentage of seats filled) 70%
Average full passenger fare $ 160
Average variable cost per passenger $ 70
Fixed operating cost per month $3,150,000

Formulas :
Revenue = Units Sold * Unit price
Contribution Margin = Revenue – All Variable Cost
Contribution Margin Ratio = Contribution Margin/Selling Price
Break Even Points in Units = (Total Fixed Costs + Target Profit )/Contribution Margin
Break Even Points in Sales = (Total Fixed Costs + Target Profit )/Contribution Margin Ratio
Margin of Safety = Revenue - Break Even Points in Sales
Degree of Operating Leverage = Contribution Margin/Net Income
Net Income = Revenue – Total Variable Cost – Total Fixed Cost
Unit Product Cost using Absorption Cost = (Total Variable Cost + Total Fixed Cost)/# of units

a. Contribution margin per passenger
$160 – $70 = $90
Contribution margin ratio
90 / 160 = .5625
56%
Break-even point in passengers = Fixed costs/Contribution Margin = Passengers
3,150,000 /90 = 35,000
Break-even point is 35,000 passengers
Break-even point in dollars = Fixed Costs/Contribution Margin Ratio =
$3,150,000 / .5625 = $5,600,000
Break-even revenue per month is $5,600,000 b. Compute # of seats per train car (remember load factor?)
90 * .70 = 63
Average passenger per car is 63
If you know # of BE passengers for one train car and the grand total of passengers, you can compute # of train cars (rounded)
35,000 / 63 = 555.55556
Break-even for…...

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