Break-Even Sales and Sales Mix for a Service Company Zero Turbulence Airline pro
ID: 2516272 • 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 $6,533 Flight crew salaries 5,004 Airplane depreciation 2,363 Variable cost per passenger—business class 65 Variable cost per passenger—economy class 50 Round-trip ticket price—business class 575 Round-trip ticket price—economy class 270 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 20% business class and 80% economy class tickets. Total number of seats at break-even 36 seats b. How many business class and economy class seats would be sold at the break-even point? Business class seats at break-even 7 seats Economy class seats at break-even 29 seats
Explanation / Answer
Solution a:
Total fixed cost per round trip flight = $6,533 + $5,004 + $2,363 = $13,900
Breakeven number of seats sold on a single round trip flight = Total fixed cost per flight / weighted average contribution margin per passanger
= $13,900 / $278 = 50 seats
Solution b:
Business class seats to be sold at breakeven point = 50 *20% = 10 seats
Economy class seates to be sold at breakeven point = 50*80% = 40 seats.
Computation of weighted average contribution margin per passanger Particulars Business Class Economy Class Total Round trip ticket price $575.00 $270.00 Variable cost per passanger $65.00 $50.00 Contribution margin per passanger $510.00 $220.00 Sales Mix 20% 80% Weighted average contribution per unit $102.00 $176.00 $278.00