Springfield Express Case Study

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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 =$160-$70=$90 Contribution margin ratio =$90/$160=56.25% Break-even point in passengers = Fixed costs/Contribution Margin = Passengers =$3,150,000/$90=35,000 units Break-even point in dollars = Fixed Costs/Contribution Margin Ratio = 35,000 X $160=$5,600,000 or $3,150,000/56.25%=$5,600,000 b. Compute # of seats per train car (remember load factor?) If you know # of BE passengers for one train car and the grand total of passengers, you can compute # of train cars (rounded) = Average number of passengers =90 X 70%=63 passengers per car. Number of cars=35,000/63=556

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