Homework

Rosa Moreno

Managerial Accounting - ACCT505

Prof. David Buenger

Keller Graduate School of Management

January 2013

Case Study #1 – Springfield Express

A) What is the Break-even point in passengers and revenues per month?

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

Break-even point in passenger= $3,150,000/$90 = 35,000

Revenue per month is Break-even point * selling price= 35,000 * $160 = $5,600,000

B) What is the Break-even point in number of passenger train cars per month?

Compute # of seats per train car (remember load factor?) 90*.7=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 is the Break-even point in number of passenger train cars per month.

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?

Contribution margin =$190 - $70=$120

Break-even point per passenger is = $ 3,150,000/120=26,250

The # passengers per train car is 90*0.6 = 54

Break-even point in # of passenger train cars per month is = 26,250/54= 486

D) Fuel cost is a significant variable cost to any railway. If crude oil increases by $ 20 per barrel, it is estimated that variable cost per passenger will rise to $ 90. What will be the new break-even point in passengers and in number of passenger train cars?

Contribution margin =$160 - $90=$70

Break-even point in passengers = $3,150,000/70= 45,000

Break-even point in # of passenger train cars = 45,000/63= 714.

E) Springfield Express has experienced an increase in variable cost per passenger to $ 85 and an increase in total fixed cost to $ 3,600,000. The company has decided to raise the average fare to $ 205. If the tax rate is 30 percent, how many passengers per month are needed to generate an after-tax profit of $...