Case Study 2

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

Contribution Margin = Revenue – All Variable Cost

$160 - $70 = $90 per passenger

Contribution Margin Ratio = Contribution Margin/Selling Price

$90 / $160 = 56%

Formula :

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. What is the break-even point in passengers and revenues per month?

a. Unit of Sales = 3,150,000 / $90= 35,000 passengers

b. Unit of Sales = 35,000 x $160= $5,600,000 revenue

b. What is the break-even point in number of passenger train cars per month?

a. Unit of Sales = 35,000/63= 556

c. If Springfield Express raises its average passenger fare to $ 190, it is estimated that the average load factor will decrease to 60 percent. What will be the monthly break-even point in number of passenger cars?

a. 90 x .60 = 54

Unit CM = $190...