Week 3 Case Study Accounting

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 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 = 90 Contribution margin ratio = 0.56 Break-even point in passengers = Fixed costs/Contribution Margin = Passengers = 35,000 Break-even point in dollars = Fixed Costs/Contribution Margin Ratio = $ 5,600,000

b. Compute # of seats per train car (remember load factor?) If you know # of BE passengers for one train car and the grand total of passengers, you can compute # of train cars (rounded) = 556

c. Contribution margin = 120 Break-even point in passengers = fixed costs/ contribution margin Passengers = 26,250 train cars (rounded) = 487

d. Contribution margin = 70 Break-even point in passengers = fixed costs/contribution margin