Case Study 1

Topics: Costs, Variable cost, Fixed cost Pages: 3 (704 words) Published: May 26, 2013
Case Study 1 Springfield Express is a luxury passenger carrier in Texas. May 26, 2013

a. What is the break-even point in passengers and revenues per month? ANSWER: BE point in number of Passengers = Fixed Costs / (Full Fare – VC), BE point in Dollar = BE point in Passengers * Full Fare b. What is the break-even point in number of passenger train cars per month? ANSWER: BE point in number of train = BE point in number of Passengers (from Part a) / number of passengers in each train at the given average load factor c. 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? ANSWER: Step 1, calculate BE point in number of Passengers = Fixed Costs / (Full Fare – VC) using the new full fare price. Step 2, calculate the number of train.

BE point in number of train = BE point in # of Passengers (from Step 1) / number of pass. in each train at new load factor of 60%.

d. (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? ANSWER: Step 1, calculate BE point in number of Passengers = Fixed Costs / (Full Fare – VC) using the new VC. Step 2, calculate the number of train.

BE point in number of train = BE point in number of Passengers (from Step 1) / number of passengers in each train at the average load factor of 70%.

e. 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...
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