749 Words3 Pages

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 =fare-variable cost per cust= 160-70= 90 Contribution margin ratio =90/160=0.5625% Break-even point in passengers = Fixed costs/Contribution Margin = Passengers =3150000/90=35000 Break-even point in dollars = Fixed Costs/Contribution Margin Ratio = $ 315000/0.5625=5600000
b. Compute # of seats per train car (remember load factor?) 3150000/contribution margin per car or 5670= 556.56 If you know # of BE passengers for one train car and the grand total of passengers, you can compute # of train cars (rounded) =556
c. Contribution margin =90 per cust and 0.5625 Break-even

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