Break-Even Sales and Sales Mix for a Service Company Zero Turbulence Airline pro
ID: 2408854 • Letter: B
Question
Break-Even Sales and Sales Mix for a Service Company
Zero Turbulence Airline provides air transportation services between Los Angeles, California; and Kona, Hawaii. A single Los Angeles to Kona round-trip flight has the following operating statistics:
Fuel $10,594
Flight crew salaries 8,114
Airplane depreciation 3,832
Variable cost per passenger—business class 50
Variable cost per passenger—economy class 40
Round-trip ticket price—business class 580
Round-trip ticket price—economy class 310
It is assumed that the fuel, crew salaries, and airplane depreciation are fixed, regardless of the number of seats sold for the round-trip flight. If required round the answers to nearest whole number.
a. Compute the break-even number of seats sold on a single round-trip flight for the overall product, E. Assume that the overall product is 20% business class and 80% economy class seats.
Total number of seats at break-even seats
b. How many business class and economy class seats would be sold at the break-even point?
Business class seats at break-even seats
Economy class seats at break-even seats
Explanation / Answer
FIXED COST = Fuel + Flight crew salaries +Airplane depreciation
= 10594+8114+3832
= 22540
Contribution = round trip ticket price – variable cost per passenger
Business class= 580-50=530
Economy class = 310-40=270
Product mix = 10% business class and 90% economy class tickets
Overall contribution= 530 *0.20 + 270 * 0.80 = 106+216 = 322
Unit selling price = 580*0.20+310*.80 = 364
Contribution margin = 322/364 = 88%
Total number of seats at break-even seats = 22540/322 = 70
b.
Business class and economy class seats would be sold at the break-even point
Business class seats at break-even seats = 70* 0.10 = 7
Economy class seats at break-even seats = 70* 0.9 = 63