Break-Even Sales and Sales Mix for a Service Company Zero Turbulence Airline pro
ID: 2438651 • 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:
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.
a. Compute the break-even number of seats sold on a single round-trip flight for the overall enterprise product, E. Assume that the overall product mix is 10% business class and 90% economy class tickets.
b. How many business class and economy class seats would be sold at the break-even point?
Fuel $5,076 Flight crew salaries 3,888 Airplane depreciation 1,836 Variable cost per passenger—business class 65 Variable cost per passenger—economy class 50 Round-trip ticket price—business class 605 Round-trip ticket price—economy class 290Explanation / Answer
a) Weighted average contribution margin per unit = (605-65*10%)+(290-50*90%) = 270 per unit
Total number of seats at break even = 10800/270 = 40 seats
b) Business class seats at break even = 40*10% = 4 seats
Economy class seats at break even = 40*90% = 36 Seats