Break-Even Sales and Sales Mix for a Service Company Zero Turbulence Airline pro
ID: 2557822 • 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 $7,000 Flight crew salaries 3,200 Airplane depreciation 3,480 Variable cost per passenger—business class 140 Variable cost per passenger—economy class 120 Round-trip ticket price—business class 800 Round-trip ticket price—economy class 300Explanation / Answer
(a) Computation of the break-even number of seats sold on a single round-trip flight for the overall enterprise product,
Unit contribution margin of overall product
Unit selling price of E [(10% × $800) + (90% × $300)] $ 350
Unit variable cost of E [(10% × $140) + (90% × $120)] $ 122
Unit contribution margin of E $ 228
Fixed costs of the Seattle to San Diego round-trip flight:
Fuel $ 7000
Flight crew salaries $ 3200
Airplane depreciation $ 3480
Total fixed costs 13,680
Break-even in sales (units) of overall product:
Break-Even Sales (units) = Fixed costs / Unit contribution margin
= $ 13,680 / $ 228
= 60 Seats
Total number of seats at break-even = 60 Seats
(b) Business class and economy class seats would be sold at the break-even point
Business class seats at break-even = 6 seats (60 seats x 10%)
Economy class seats at break-even = 54 seats (60 seats x 90%)