Comfi Aiways, Inc., a small two-plane passenger airline, has asked for your assi
ID: 2340490 • Letter: C
Question
Comfi Aiways, Inc., a small two-plane passenger airline, has asked for your assistance in some basic analysis of its operations. Both planes seat 10 passengers each, and they fly commuters from Comfi's base airport to the major city in the state, Metropolis. Each month, 40 round-trip flights are made. Shown below is a recent month's activity in the form of a cost-volume-profit income statement. Fare revenues (400 passenger flights) Variable costs $64,000 Fuel Snacks and drinks Landing fees Supplies and forms $15,240 760 2,000 1,200 19,200 Contribution margin Fixed costs 44,800 Depreciation Salaries Advertising Airport hanger fees 3,000 16,840 300 1,700 21,840 Net income $22,960 Calculate the break-even point in dollars Break-even point LINK TO TEXT Calculate the break-even point in number of passenger flights Break-even point flights LINK TO TEXT Without calculations, determine the contribution margin at the break-even point. Break-even point LINK TO TEXT If ticket prices were decreased by 10%, passenger flights would increase by 25%. However, total variable costs would increase by the same percentage as passenger flights (1) How much would net income be impacted by this change? Net incomeExplanation / Answer
Answers
A
Fixed Costs
$ 21,840.00
B
Contribution margin
$ 44,800.00
C
Fare Revenue
$ 64,000.00
D = (B/C) x 100
CM Ratio
70%
E = A/D
Break Even point in $
$ 31,200.00 = Answer
A
Contribution margin
$ 44,800.00
B
No. of passenger Flights
400
C = A/B
Contribution margin per passenger flight
$ 112.00
D
Fixed Costs
$ 21,840.00
E = D/C
Break Even point in no. of flight
195 flights = Answer
Working
Current revenue per passenger flight = $ 64,000 / 400 = $ 160
1.Decrease Revenue per flight = 160 – 10% = $ 144
Current no. of flight = 400
2.Increased no. of flights = 400 + 25% = 500 flights
3.Variable cost per flight = $ 19,200 / 400 = $ 48
No. of passenger flight
per passenger flight
Amount
Fare Revenue
500 [see 2 above]
$ 144.00 [see 1 above]
$ 72,000.00
Variable cost
500
$ 48.00 [see 3 above]
$ 24,000.00
Contribution margin
500
$ 96.00
$ 48,000.00
Fixed Cost
$ 21,840.00
New net Income
$ 26,160.00
Earlier Net Income
$ 22,960.00
Increase in Net Income
$ 3,200.00
Answer: Net Income INCREASE to $ 26,160
A
Fixed Costs
$ 21,840.00
B
Contribution margin
$ 44,800.00
C
Fare Revenue
$ 64,000.00
D = (B/C) x 100
CM Ratio
70%
E = A/D
Break Even point in $
$ 31,200.00 = Answer