Budgeting Case Study

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Case Study 1 a) What is the break-even point in passengers and revenues per month? Contribution margin per passenger = \$ 160- \$ 70 = \$ 90 per passenger Contribution margin ratio = \$ 90/\$160 = 56.25% Passengers = \$3,150,000/\$ 90 per passenger = 35,000 passengers Break-even point in dollars = \$ 3,150,000/0.5625 = \$ 5,600,000 b) What is the break-even point in number of passenger train cars per month? Average load factor = 70% of 9090 X 0.70 = 63 seats per train car 35,000/ 63 = 556 train cars 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 per passenger 90 X .60 = 54 filled seats Break-even point in passengers = \$ 3,150,000/\$120 = 26,250 passengers 26,250/54 = 486 train cars d) (Refer to original data.) 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? New contribution margin = \$70 Break-even point in passengers = fixed costs/contribution margin Passengers = 45,000 Train cars = 715 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 \$ 750,000? Before Tax Needed Profit = \$1,071,428.57 Before Tax Needed Contribution Margin = \$4,671,428.57 Contribution Margin per Customer = \$120 Number of Customers Needed = 38,928.57 Whole Number of Customers Needed = 38,929