Springfield Case Study

Topics: Automobile, Variable cost, Generally Accepted Accounting Principles Pages: 2 (357 words) Published: February 3, 2013
Case Study ll
a)
Fixed cost = 3,150,000
160x = 70x + 3,150,000
90x = 3,150,000
X = 35,000 passengers – breakeven
Break even revenue = 35,000x160 = 5,600,000
b) at 70% load = 90x0.7 = 63
Breakeven per car = 35,000 / 63 = 556 approximately
c) Sale price = 190
190x = 70x + 3,150,000
X = 26,250 breakeven passengers
At 60% load = 90x0.6 = 54
Breakeven cars = 26,250 / 54 = 487 approximately
d) New variable cost = 90 per passenger
160x = 90x + 3,150,000
X = 45,000 breakeven passengers
At 70% load = 90x0.7 = 63
Breakeven cars = 45,000 / 63 = 715 cars
e) After tax profit = 750,000
Then before tax profit: (let profit = y)
y – 0.3y = 750,000
y = 1,071,429 approximately
1,071,429 = Sales – Cost
1,071,429 = 205x – (85x + 3,600,000)
1,071,429 = 205x – 85x – 3,600,000
120x = 4,671,429
X = 38,929 passengers
f) Increase in variable load was 10%; New V. load 80% - Old V. load 70% New Variable cost = (discount rate- v. cost)
New Variable cost= (120-70)= $50 per passenger
Additional seats: 90 x 10%= 9 seats
Income per day = 9 passenger x $50 V.C = $450 per day
Income per month = $450 x 30 day = $13,500
Revenue for a month = $13,500 x 50 passenger cars= $675,000
Pre-Tax = $675,000 – 180,000 = $495,00
g) 1) at 60% load per car passenger = 90x0.6 = 54
The company shouldn’t obtain the route if there are more than 2,380 passengers on this route every month. The fixed cost would exceed the operating income generated from this route. 2) 120,000 = 175x – 70x – 250,000

X = 3,524 passengers
At 60% load = 90x0.6 = 54
Passenger cars = 3,524 / 54 = 65 approx
3) At 75% load = 90x0.75 = 67.5
Passenger cars = 3,524 / 67.5 = 52 approx
4) What qualitative factors should be considered by Springfield? Springfield is a luxury carrier; therefore it needs to assess what type of people will be travelling on this route? Maybe the people need just an economy standard carrier on this route.
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