Managerial Accounting Case Study 2 Keller

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Date Submitted: 11/25/2012 10:26 AM

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Managerial Accounting 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

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. Contribution margin per passenger =160-70=$90

Contribution margin ratio =90/160= 56.25%

Break-even point in passengers = Fixed costs/Contribution Margin = 3150000/90=

Passengers =35,000

Break-even point in dollars = Fixed Costs/Contribution Margin Ratio = 3150000/0.5625=$5,600,000

b. Compute # of seats per train car (remember load factor?) 160-70=90 be contribution margin per passenger 90 passengers * 70% Full = 63 passengers per car on average

If you know # of BE passengers for one train car and the grand total of passengers, you can compute # of train cars (rounded) =? 63*90=5670 average contribution margin per train car

3,150,000/5670=556 number of train cars per month