case study
What is the break-even point in passengers and revenues per month?
First we have to figure out the contribution Margin = Sales per fare – variable expense per unit:
$160.00 - $70.00 = $90.00 (Contribution Margin.
Break Even point in passengers= Fixed costs (divided) contribution Margin:
$3,150,000 / $90 = 35,000 passengers.
Break-even point in revenues per month = Fare sales to breakeven (X) Sales per unit.
35,000 x $160 = $5,600,000
• What is the break-even point in number of passenger train cars per month? At 70% load = 90 x 70% = 63 Breakeven point in passengers = 35,000/63 = 556 cars 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? 90 seats x 60% = 54 Contribution Margin = $190 - $70 = $120 Fixed costs $3,150,000/ $120 = 26250 Passengers 26250/54 = 486 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?
Contribution margin = ($160 - $90) = $70
3,150,000/70 = 45,000
Breakeven point in number of passenger cars per month:
90x70% = 63
45,000/ 63 = 714 cars
e) Springfield Express has experienced an increase in variable cost per passengers 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?
New Contribution Margin: $205- $85 = $120.00
Profit=after tax profit/tax rate = $750,000x 70% = $1,071,429
Breakeven point in passengers =
$3,600,000 + $1071.429 = $4,671,429 (divided) $120
• What is the break-even point in number of passenger train cars per month? At 70% load = 90 x 70% = 63 Breakeven point in passengers = 35,000/63 = 556 cars 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? 90 seats x 60% = 54 Contribution Margin = $190 - $70 = $120 Fixed costs $3,150,000/ $120 = 26250 Passengers 26250/54 = 486 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?
Contribution margin = ($160 - $90) = $70
3,150,000/70 = 45,000
Breakeven point in number of passenger cars per month:
90x70% = 63
45,000/ 63 = 714 cars
e) Springfield Express has experienced an increase in variable cost per passengers 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?
New Contribution Margin: $205- $85 = $120.00
Profit=after tax profit/tax rate = $750,000x 70% = $1,071,429
Breakeven point in passengers =
$3,600,000 + $1071.429 = $4,671,429 (divided) $120