Accc

Case Study 1

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 = 70% of 90 seats = 63 * 160 a seat is $10,080

Contribution Margin = Revenue – All Variable Cost = $10,080 – 70 * 63(per passenger) = $5,670

Contribution Margin Ratio = Contribution Margin/Selling Price $5,670 / $160 = $35.44

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 per passenger – the variable cost of $70 = $90 per passenger

Contribution margin ratio =? $90 per passenger / $160 selling price = 0.5625

Break-even point in passengers = Fixed costs/Contribution Margin = Passengers =? Fixed costs of 3,150,000 /$90 per ticket = 35,000

Break-even point in dollars = Fixed Costs/Contribution Margin Ratio =

$ ? Fixed costs of 3,150,000 / margin of 0.5625 = 5,600,000

b. Compute # of seats per train car (remember load factor?) 90 seats per train and 70% load is averaging 63 passengers per load.

If you know # of BE passengers for one train car...