CASE STUDY/MANAGERIAL ACCOUNTING

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?

Fixed cost | 3,150,000 |

Selling price | 160 |

Variable cost | 70 |

Break-even (Revenue) | 5,600,000 =fixed cost/((Selling price – variable cost)/Selling price) |

Break-even (Passengers) | 35,000 =fixed cost/(Selling price – Variable cost) |

b. What is the break-even point in number of passenger train cars per month?

Load factor | 70% |

Capacity of train | 90 |

Break Even (Passenger cars) | 556 =35,000/(90 * 70%) |

c. If Springfield Express raises its average passenger fare to $ 190, it is estimated that the average load factor will decrease to 60 percent. What will be the monthly break-even point in number of passenger cars?

Fixed cost | 3,150,000 |

Selling price | 190 |

Variable cost | 70 |

Break even (Passengers) | 26,250 |

Load factor | 70% |

Capacity of train | 90 |

Break Even (Passenger cars) | 417 |

d. (Refer to original data) Fuel cost is a significant variable cost to any railway. If crude oil increases by $ 20 per barrel, it is estimated that variable cost per passenger will rise to $ 90. What will be the new break-even point in passengers and in number of passenger train cars?

Fixed cost | 3,150,000 |

Selling price | 160 |

Variable cost | 90 |

Load factor | 70% |

Capacity of train | 90 |

Break even (Passengers) | 45,000 |

Break Even (Passenger cars) | 714 |

e. Springfield Express has experienced an increase in variable cost per passenger to $ 85 and an increase in total fixed cost to $ 3,600,000. The company has decided to...