# Ac505 Case Study 2

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• Published : November 18, 2011

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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

1. What is the break-even point in passengers and revenues per month? Unit CM = \$160 – \$70= \$90
a.) Unit of Sales = 3,150,000 / \$90= 35,000 passengers
b.) Unit of Sales = 35,000 x \$160= \$5,600,000 revenue

2. What is the break-even point in number of passenger train cars per month? Unit of Sales = 35,000/63= 555.5= 556 passenger cars (rounded)

3. If Springfield Express raises its average passenger fare to \$ 190, it is estimated that the average load factor will decrease to 60 percent. What will be the monthly break-even point in number of passenger cars? 90 x .60 = 54

Unit CM = \$190 – \$70= \$120
Unit of Sales = \$3,150,000 / \$120= 26,250 passengers
Unit of Sales = 26,250/54= 486.1
=486 passenger cars (rounded)

4. (Refer to original data.) Fuel cost is a significant variable cost to any railway. If crude oil increases by \$ 20 per barrel, it is estimated that variable cost per passenger will rise to \$ 90. What will be the new break-even point in passengers and in number of passenger train cars? Unit CM = 160 – 90= 70

a.) Unit of Sales = 3,150,000 / 70 = 45,000 Passengers
b.) Unit of Sales = 45,000/63= 714.2= 714 passenger cars (rounded)

5. Springfield Express has experienced an increase in variable cost per passenger to \$ 85 and an increase in total fixed cost to \$ 3,600,000. The company has decided to raise the average fare to \$ 205. If the tax rate is 30 percent, how many passengers per month are needed to generate an after-tax profit of \$ 750,000? Unit CM = 205 – 85= 120

after-tax profit = 750,000/(1-.30)= 750,000/.70= 1071428.57
205X – 3,600,000 – 85X = 1,071,428.57
+ 3,600,000 = + 3,600,000...