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
a. What is the break-even point in passengers and revenues per month?
$3,150,000/($160-$70)= 35000 ...view middle of the document...
30)= $1,071,428.57 + $3,600,000 = $4,671,428.57/$120 = Rounded up to 38929 passengers per month required to attain $750,000
f. (Use original data). Springfield Express is considering offering a discounted fare of $ 120, which the company believes would increase the load factor to 80 percent. Only the additional seats would be sold at the discounted fare. Additional monthly advertising cost would be $ 180,000. How much pre-tax income would the discounted fare provide Springfield Express if the company has 50 passenger train cars per day, 30 days per month?
80%-70%=10%x90=9 seats x $120 = $1,080 x 50 cars = $54,000 x 30 days = $1,620,000 per month - $180,000 Advertising Costs = $1,440,000
g. Springfield Express has an opportunity to obtain a new route that would be traveled 20 times per month. The company believes it can sell seats at $ 175 on the route, but the load factor would be only 60 percent. Fixed cost would increase by $ 250,000 per month for additional personnel, additional passenger train cars, maintenance, and so on. Variable cost per passenger would remain at $ 70.
90 x 60% = 54 passengers x $175 = $9,450 x 20 = $189,000
90 x 60% = 54 passengers x $105CM = $5670 x 20 = $113,400
1. Should the company obtain the route?
No, additional fixed costs are much more than the additional sales revenue, not to mention the additional contribution margin
2. How many...