Ac 505: Case Study Two

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a)
Contribution margin= Sales per unit - Varibale expenses per unit
$160 - $70
$90
Break even point in passengers = Fixed expenses / Unit CM
3,150,000 / 90
35,000units
Break even point in revenues per month = Unit sales to break even X Sales per unit
35,000 X $160
$5,600,000

b)
Break even point in number of passenger cars per month
* 90 X 70%35,000 / 63
63555.5555556
or 556 Cars

c)
Break even point in number of passenger cars per month (New fare and Average load factor) *90X60%35,000 / 54
54648.1481481
or 648 Cars

d)
Break even point in passengers (With increased variable cost) = Fixed expenses / Unit CM CM = $160 - $90 = $70
3,150,000 / 70
45,000 units
Break even point in number of passenger cars per month
*90 x 70%45,000 / 63
63714.2857143
or 714 Cars

e)
After tax income =
$ 750,000/ ( 1 – tax rate)
$ 750,000/ ( 1 – 0.30)
$ 750,000 / 0.70
$1,071,429

f)
Net Income with discount = $ 495,000
Net Income with discount for normal operations = $ 5,355,000 Pre Tax Net Income = $ 5,850,000 ($495,000 + $5,355,000)

g)
1) No they should not
Contribution margin = $175 - $70 or $105 per passenger
90X .60 = 54 seats
54 X $105 X 20 train cars = $ 113,400
Incfreased fixed cost (250,000)
Pretax loss on new route $(136,600)
2)
$175X - $70X - $250,000 = $120,000
$105 X = $370,000
X = 3,524 passengers
3,524 / 54 = 65 train cars

3)
Contribution margin = $105 per passenger
90 X .75 = 67.5 seats
67.5 X $105 X 20 train cars = $141,750
$175X -70X - $250,000 = $120,000
$105X = $370,000
X = 3,524 passengers
3, 524 / 67.5 = 52 train cars
4)
Qualitative factors are considerations in decision making, in addition to the...
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