Comfi Airways, Inc., a small two-plane passenger airline, has asked for your ass
ID: 2515329 • Letter: C
Question
Comfi 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 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.
Net income
$22,960
1) Calculate the break-even point in (1) dollars and (2) number of fares. (Round answers to 0 decimal place, e.g. 1,225.)
2) Without calculations, determine the contribution margin at the break-even point.
3) If fares were decreased by 10%, an additional 100 fares could be generated. However, total variable costs would increase by 20%. (Round answers to 0 decimal place, e.g. 1,225.)
4) (1) How much would net income be impacted by this change?
Fare revenues (400 passenger flights) $64,000 Variable costs Fuel $15,240 Snacks and drinks 760 Landing fees 2,000 Supplies and forms 1,200 19,200 Contribution margin 44,800 Fixed costs Depreciation 3,000 Salaries 16,840 Advertising 300 Airport hanger fees 1,700 21,840Net income
$22,960
Explanation / Answer
1) Contribution per unit : 44800/400=112
contribution margin ratio = contribution /sales
= 44800/64000
= .70 or 70%
BEP($) =Fixed cost /CM ratio
= 21840 /.70
= $ 31200
BEP(number of fares) = Fixed cost / contribution per fare
= 21840/112
= 195
2)At breakeven ,Total contribution is equal to fixed cost .Therefore Contribution = $ 21840
4-1)Fare Per passenger (current) : 64000/400 = $ 160
New Fare : 160 (1-.10) = 144
Total new passenger : 400+100=500
variable cost per unit (current) =19200/400= 48
variable cost per unit (new)= 48(1+.20)= 57.60
4-1)net income be impacted by this change =Total new fare (new price -new variable cost) -Fixed cost
=500(144-57.60) - 21840
= $ 43200-21840
= $ 21360
5)No fare should not be decreased as net income decreases from 22960 to 21360