Submitted by: Submitted by mariae4
Views: 222
Words: 679
Pages: 3
Category: Business and Industry
Date Submitted: 09/01/2013 07:49 PM
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
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 per passenger
Contribution margin ratio = $90 / $160 = .5625
Break-even point in passengers = Fixed costs/Contribution Margin = $3,150,000 / $90
Passengers = 35,000
Break-even point in dollars = Fixed Costs/Contribution Margin Ratio = $3,150,000 / .5625
$5,600,000
b. Compute # of seats per train car (remember load factor?) = 90 x 70% = 63 passengers per train car
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 = 556 train cars
c. Contribution margin = $190 - $70 = $120
Break-even point in passengers = fixed costs/ contribution margin
Passengers =...