Acct 505 Course Project

Ronice M. Bruce Week 3_Course Project A - CASE STUDY
ACCT 505- Prof Main
January 26, 2013

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? Fixed cost | $ 3,150,000 | | Selling price | $ 160 | | Variable cost | $ 70 | | Break-even (Passengers) | 35,000 | BE (Passengers) = Fixed cost/ (Selling price – Variable Cost) = 3,150,000 / 160-70 = 3,150,000 / 90 = 35, 000 | Break-even (Revenue) | $5,625,000 | BE (Revenue) = Fixed Cost/Contribution Ratio Contribution Margin Ratio =[(Selling Price per unit – Variable Cost per unit) /Selling price per unit ] = (160-70)/160 = 56%BE Target Sales in $ = (Fixed cost + target income)/ contribution margin ratio = 3,500,000/56% = $5,625,000 |
Springfield Express needs 35,000 passengers to generate $5.625M in revenue to break-even per month.

b. What is the break-even point in number of passenger train cars per month? Load factor | 70% | | Capacity of train | 90 | | Break Even (Passenger cars) | 556 | BE Passenger Cars = BE Passengers / (Capacity x Load Factor) = 35,000 / (90 x 70%) = 556 |
Springfield Express needs 556 passenger cars at 70% capacity to break-even monthly.

c. If Springfield Express raises its average passenger fare to $ 190, it is estimated that the average load factor