Math 533 Essay

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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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