Break-Even Sales and Sales Mix for a Service Company Zero Turbulence Airline pro
ID: 2518106 • 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 $12,784
Flight crew salaries 9,792
Airplane depreciation 4,624
Variable cost per passenger—business class 70
Variable cost per passenger—economy class 55
Round-trip ticket price—business class 550
Round-trip ticket price—economy class 275
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_____ seats
b. How many business class and economy class seats would be sold at the break-even point? Business class seats at break-even____ seats
Economy class seats at break-even____ seats
Explanation / Answer
Answer for a)
Total fixed costs=$12784+$9792+$4625=$27200
Contribution of business class to be considered:
$(550-70)×20%=$96
Contribution of economy class to be considered:
$(275-55)×80%=$176
Breakeven no. Of seats:fixed cost/contribution
:$27200/$(96+176)=100 seats
Answer for b)
Break down at break even point:
For Business class seats:100 seats×20%=20 seats
For Economy class seats:100 seats×80%=80 seats