Break-Even Sales and Sales Mix for a Service Company Zero Turbulence Airline pro

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 Flight crew salaries Airplane depreciation Variable cost per passenger-business class Variable cost per passenger-economy class Round-trip ticket price-business class Round-trip ticket price-economy class 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 $9,362 7,171 3,387 40 30 550 250 Total number of seats at break-even b. How many business class and economy class seats would be sold at the break-even point? Business class seats at break-even Economy class seats at break-even seats seats seats

Explanation / Answer

a) Weighted average contribution margin per unit = (510*10%+220*90%) = 249 per unit

Break even point = Fixed cost/weighted average contribution margin per unit

= 19920/249

Break even point = 80 seats

b) Business class seats at break even = 80*10% = 8 seats

Economy class seats at break even = 80*90% = 72 seats

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