Acct505 Case Study 1

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ACCT505 Case Study 1 Week 3 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 number of Passengers per trip 63 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. The Contribution margin per passenger = $160-$70=$90 Contribution margin ratio = $160-$90=56.25% The Break-even point for passengers per month = $3,150,000/$90= 35,000 Passengers The Break-even point in dollars per month = $3,150,000/56.25% = $56,000 b. The number of seats per train car based on average load is 90 x 0.70 = 63. The break-even point in number of passenger train cars per month = 35,000/63= 555.55 or 556 train cars c. Contribution margin =$190-70=$120 Break-even point in passengers = 3,150,000/ $120= 26,250 Passengers The number of seats per train car based on

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