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# Case Study 2

818 words - 4 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

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...

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