Acct 505

Case Study 1

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 factory (percentage of seats filled) |70% |

|Average full passenger fare | | |$160 |

|Average variable cost per passenger | |$70 |

|Fixed operating cost per month | | |$3,150,000 |

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

Fixed cost = 3,150,000 160x = 70x + 3,150,000 90x = 3,150,000 X = 35,000 passengers – breakeven Break even revenue = 35,000 x 160 = 5,600,000

b. What is the break-even point in number of passenger train cars per month?

At 70% load = 90x0.7 = 63

Breakeven per car = 35,000 / 63 = 556

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?

Sale price = 190

190x = 70x + 3,150,000

X = 26,250 breakeven passengers

At 60% load = 90x0.6 = 54

Breakeven cars = 26,250 / 54 = 486

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?

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 = 714 cars

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