# Managerial Accounting 505 Case Study Week 3

Managerial Accounting 505 Case Study Week 3

A. What is the break-even point in passengers and revenues per month?

Total Per UnitPercent

Sales: 160 X 90 $14,400$ 160100%

Less variable costs/expenses: .70 X 90 $ 6,300 $7044% Contribution margin: $ 8,100$9056%

Less fixed costs/expense: $3,150,000

Net operating income: $3,141,900

8,100 /14,400 = 56%

100 - 56 = 44%

BEP in passengers (fixed costs / contribution margin)

3,150,000 / 90 = 35,000 passengers

BEP in dollars (passenger per month X selling price)

35,000 X 160 = 5,600,000

B. What is the break-even point in number of passenger train cars per month? # of seats per passenger train cars X Average load factor

BEP in passenger’s car per month 35,000/ (90x.70)

35,000/ 63 = 556 passenger train per month

C.If Springfield Express raises its average passenger fare to $190, it is estimated that the average load factor will decrease to 60%. What will be the monthly break-even point in number of passenger cars?

Total Per UnitPercent

Selling Price $17,100$190100

Less variable costs/expense$6,300$70 37

Contribution margin$10,800$12063

BEP in passengers (fixed cost / unit cm )

3,150,000 / 120 = 26,250

BEP in passengers per month in dollars (fixed costs / cm ratio) 3,150,000 / .63 = 5,000,000

# of seats per passenger train cars X Average load factor 90 X .60 = 54 BEP # of passengers cars 26,250 / (90 X .60) 54 = 486 passengers train cars per month 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?

BEP in passengers Fixed operating cost /contribution margin

$3,150,000/ 70 = 45,000 passengers per month BEP # of passengers per car 90x.70 = 63 passenger per car

Passengers per month/passenger train cars

45,000/63= 714 passenger train cars per month 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 after-tax profit of $ 750,000? Before tax profit = after-tax profit /100%-tax rate %

750,000/(1.00-.30)= $1,071,429

Before tax profit + fixed cost/New contribution margin

$,1,071,429 + $3,600,000/($205-$85) = $4,671,429/$120 = 38928.56 or 38,929 passenger per month.

F.(Use original data). Springfield Express is considering offering a discounted fare of $ 120, which the company believes would increase the load factor to 80 percent. Only the additional seats would be sold at the discounted fare. Additional monthly advertising cost would be $ 180,000. How much pre-tax income would the discounted fare provide Springfield Express if the company has 50 passenger train cars per day, 30 days per month? Revenue= 90 x (.80-.70) x 120 x 50 x 30 + $180,000 = $1,800,000 Variable cost= $70 x ($1,800,000/discount fare ($120) = 1,050,000 Additional monthly advertising cost = $180,000 Revenue…………………………………………………………………………$1,800,000 Less Variable cost………………………………………………………($1,050,000) Contribution Margin…………………………………………… $750,000 Less Advertising cost………………………………………… ($180,000) Pretax income discount fare provide………..$570,000

f# of discounted seats = 90 X .10 = 9 seats

Contribution margin for discounted fares = $ 120 - $ 70 = $ 50 X 9 discounted seats = $450 each train X 50 train cars per day X 30 days per month= $ 675,000 minus...

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