Springfield Express

Instructions:

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 |

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

Break-even Point

Unit CM= $160 average full passenger fare – $70 average variable cost per passenger =$ 90

Unit Sales= $3,150,000 Fixed expenses/ $90 Contribution Margin = 35,000 passengers

Unit Sales= 35,000 passengers * $160 average full passenger fare= $5,600,000 in total revenue per month b. What is the break-even point in number of passenger train cars per month?

Number of seats 90*70% average load factor= 63 passengers per train

Unit Sales= 35,000 passengers / 63 pass per train= 555.56 or 556 total passenger train cars 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 percent. What will be the monthly break-even point in number of passenger cars?

Number of seats per train = 90 x Load factor percentage = 60%= 54 Pass per train

Unit CM= $190 Increase pass fare - $70 average passenger fare= $120 Unit CM

Unit Sales = $3,150,000 Fixed Expenses / $120 Unit CM= 26,250 break even passengers

Unit Sales= 26,250 passengers/ 54 pass per train = 486.11 or 486 monthly break-even point in passenger cars 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?

Unit CM = 160 average full pass fare- 90 Number of seats= 70

Unit Sales=