Case Study 2
Case Study 2
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
Formula :
Revenue = Units Sold * Unit price
Contribution Margin = Revenue – All Variable Cost
Contribution Margin Ratio = Contribution Margin/Selling Price
Break Even Points in Units = (Total Fixed Costs + Target Profit )/Contribution Margin
Break Even Points in Sales = (Total Fixed Costs + Target Profit )/Contribution Margin Ratio
Margin of Safety = Revenue - Break Even Points in Sales
Degree of Operating Leverage = Contribution Margin/Net Income
Net Income = Revenue – Total Variable Cost – Total Fixed Cost
Unit Product Cost using Absorption Cost = (Total Variable Cost + Total Fixed Cost)/# of units
a. Contribution margin per passenger =$160 - $70 = $90 Contribution margin ratio =$90/$160=56.25% Break-even point in passengers = Fixed costs/Contribution Margin = $ 3,150,000/$90 Passengers =35,000 Break-even point in dollars = Fixed Costs/Contribution Margin Ratio = $ 3,150,000/56.25% $ 5,600,000
b. Compute # of seats per train car (remember load factor?)= 90 * 70% = 63 Seats filled Compute # of train cars (rounded) = 35,000/63 = 556 train cars filled
c. Contribution margin = $190 - $70 = $120 Break-even point in passengers = fixed costs/ contribution margin =$ 3,150,000/$120 Passengers = 26,250 BE = 90 seats *60% = 54 Train cars (rounded) = 26,250/54 = 486
d. Contribution
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
Formula :
Revenue = Units Sold * Unit price
Contribution Margin = Revenue – All Variable Cost
Contribution Margin Ratio = Contribution Margin/Selling Price
Break Even Points in Units = (Total Fixed Costs + Target Profit )/Contribution Margin
Break Even Points in Sales = (Total Fixed Costs + Target Profit )/Contribution Margin Ratio
Margin of Safety = Revenue - Break Even Points in Sales
Degree of Operating Leverage = Contribution Margin/Net Income
Net Income = Revenue – Total Variable Cost – Total Fixed Cost
Unit Product Cost using Absorption Cost = (Total Variable Cost + Total Fixed Cost)/# of units
a. Contribution margin per passenger =$160 - $70 = $90 Contribution margin ratio =$90/$160=56.25% Break-even point in passengers = Fixed costs/Contribution Margin = $ 3,150,000/$90 Passengers =35,000 Break-even point in dollars = Fixed Costs/Contribution Margin Ratio = $ 3,150,000/56.25% $ 5,600,000
b. Compute # of seats per train car (remember load factor?)= 90 * 70% = 63 Seats filled Compute # of train cars (rounded) = 35,000/63 = 556 train cars filled
c. Contribution margin = $190 - $70 = $120 Break-even point in passengers = fixed costs/ contribution margin =$ 3,150,000/$120 Passengers = 26,250 BE = 90 seats *60% = 54 Train cars (rounded) = 26,250/54 = 486
d. Contribution