# Case Study 2

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• Published : December 2, 2012

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Case Study 2

Springfield Express is a luxury passenger carrier in Texas. All seats are first class, and the following data are available:

Number of seats per passenger train car 90 Average load factor (percentage of seats filled) 70% Average full passenger fare \$ 160 Average variable cost per passenger \$ 70 Fixed operating cost per month \$3,150,000

Formula :
Revenue = Units Sold * Unit price
Contribution Margin = Revenue – All Variable Cost
Contribution Margin Ratio = Contribution Margin/Selling Price Break Even Points in Units = (Total Fixed Costs + Target Profit )/Contribution Margin Break Even Points in Sales = (Total Fixed Costs + Target Profit )/Contribution Margin Ratio Margin of Safety = Revenue - Break Even Points in Sales

Degree of Operating Leverage = Contribution Margin/Net Income Net Income = Revenue – Total Variable Cost – Total Fixed Cost Unit Product Cost using Absorption Cost = (Total Variable Cost + Total Fixed Cost)/# of units

a. Contribution margin per passenger =\$160 - \$70 = \$90
Contribution margin ratio =\$90/\$160=56.25%
Break-even point in passengers = Fixed costs/Contribution Margin = \$ 3,150,000/\$90 Passengers =35,000
Break-even point in dollars = Fixed Costs/Contribution Margin Ratio = \$ 3,150,000/56.25% \$ 5,600,000

b. Compute # of seats per train car (remember load factor?)= 90 * 70% = 63 Seats filled Compute # of train cars (rounded) = 35,000/63 = 556 train cars filled

c. Contribution margin = \$190 - \$70 = \$120
Break-even point in passengers = fixed costs/ contribution margin =\$ 3,150,000/\$120 Passengers = 26,250
BE = 90 seats *60% = 54
Train cars (rounded) = 26,250/54 = 486

d. Contribution margin =...