Testing

A. BEP in passengers = fixed operating cost per month / contribution margin

*CM = 160 – 70 = 90

BEP in passengers = 3,150,000/90 = 35,000

BEP in revenues = BEP in passengers x fare

35,000 x 160 = $2,100,000

B. BEP in passenger cars = fixed operating cost per month / (passengers x 30)

3,150,000 / (90 x 30) = 1,166.67

C. New BEP in passenger cars = (raised fare – VC) x passengers x % decrease

(190 -70) x 90 x .60 = 6,480

BEP per passenger car = fixed operating cost per month / adj. BEP in passenger cars

3,150,000 / 6,480 = 486.11

D. CM per passenger = fare – rise in VC

160 – 90 = 70

CM per passenger car = CM per passenger x avg. load factor x passengers

70 x .70 x 90 = 4,410

BEP in passengers = fixed operating cost per month / CM per passenger

3,150,000 / 70 = 45,000

BEP per passenger car = fixed operating cost per month / CM per passenger car

3,150,000 / 4,410 = 714.29

E. Profit = 750,000 / CMR

CMR = CM / Sales Revenue

CMR= 90 / 160 = 0.6

Profit = 750,000 / 0.6 = 1,250,000

New CM per passenger = raised average fare – increased VC

205 – 85 = 120

Number of passengers = (increased TFC + Profit) / New CM per passenger

(3,600,000 + 1,250,000) / 120 = 40,416.67

F. CM of additional passenger cars = (discounted fare – VC) x (increased load factor – avg. load factor) x passengers

(120 – 70) x (.80 - .70) x 90 = 450

Additional pre- tax income = (CM of additional passenger cars x cars per day x 30 days per month) – additional advertising cost

(450 x 50 x 30) – 180,000 = 495,000

G. 1. Additional CM = (passengers x load factor) x (avg. load factor – VC) x 20 times per month

(90 x .60) x (.70 – 70) x 20 = 74,844

Additional CM – Additional FC =

-74,844 – 250,000 = -$324,844

Springfield would incur a loss if they obtain this route, they shouldn’t obtain it.

2. CM per passenger car = (passenger x load factor) x new CM per passenger

(90 x .60) x 120 = 6,480...