Regional Airways, Inc., a small two-plane passenger airline, has asked for your

Question

Regional Airways, 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 Regional's base airport to the major city in the state, Metropolis. Each month 40 round-trip flights are made. Shown on page 219 is a recent month's activity in the form of a cost-volume-profit income statement.
Fare revenues (300 fares) $45,000
Variable costs
Fuel $14,000
Snacks and drinks 800
Landing fees 2,000
Supplies and forms 1,200 18,000
Contribution margin 27,000
Fixed costs
Depreciation 3,000
Salaries 15,000
Advertising 500
Airport hangar fees 1,750 20,250
Net income $ 6,750

1. Calculate the break-even point in dollars.

Explanation / Answer

Break-even point (in fares) = Fixed Coss / Contribution margin per fare                                          = $20,250/90     ($27,000/300=$90)                                          = $225 Hence break-even poin for fare = $225 Break-even point (in dollars) = Fixed costs/Contribution margin Raio Contribution margin ratio       = Contribution margin/Sales                                             = $27,000/45,000                                               = 0.6 Break-even point (in dollars) = $20,250/0.6                                             = $33,750                                        

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