Acct 505 Case Study 1 Solutions

591 WordsJan 12, 20153 Pages
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 a. Contribution margin per passenger = $160 - $70 = $90 Contribution margin ratio = $90 / $160 = 56.25% Break-even point in passengers = 3,150,000 / 90 = 35,000 Beak-even point in dollars = 3,150,000 / .5625 = $5,600,000 b. Compute # of seats per train car (remember load factor?) = 90 * 70% = 63 If you know # of BE passengers for one train car and the grand total of passengers, you can compute # of train cars (rounded) Break-even # of passengers = 35,000 Break-even # of cars = 35,000 / 63 = 556 c. Contribution margin = 190 – 70 = 120 Break-even point in passengers = fixed costs/ contribution margin Passengers = 3,150,000 / 120 = 26,250 @ 60% load = 90 * 0.6 = 54 train cars (rounded) = 26250 / 54 = 486 The monthly break-even point in # of cars = 486 d. Contribution margin = 160-90 = 70 Break-even point in passengers = fixed costs/contribution margin Passengers = 3,150,000 / 70 = 45,000 train cars (rounded) = 45,000 / (90*0.7) = 45,000/63 = 715 The new break-even point in passengers = 45,000 The new break-even point in # of cars = 715 e. Before tax profit less the tax rate times the before tax profit = after-tax income = Contribution Margin = 205 – 85 = 120 Y = before tax profit 750,000 = y - .30y 750,000 = .70y 1,071,429 = y X = # of

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