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?
Contribution Margin/Passenger = 160 -70
Contribution margin ratio = 160- 70/ 160
Break Even Points in Units = (Total Fixed Costs + Target Profit )/Contribution Margin
Break-even for passengers:
(3,150,000 + 0) / (160-70):35000
Break Even Points in Sales = (Total Fixed Costs + Target Profit )/Contribution Margin Ratio
Break-even for revenues:
(3,150,000 + 0)/ (90/160): $5,600,000
b. What is the break-even point in number of passenger train cars per month?
1 car loaded by 70%, and there are 90 seats. Per month, the break-even for passengers is 35000. .7 * 90= 63 passengers, 35000/63
Break-even for number of cars 555.5555556: 556
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?
190 -70 = 120
90 * .6 = 54 Break-even for number of cars:
(3,150,000 +0)/ (120) = 26250
26250/54 : 486
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?
Contribution margin/passenger = 160 - 90 = 70