Question

Break-Even Sales and Sales Mix for a Service Company

Zero Turbulence Airline provides air transportation services between Los Angeles, California; and Kona, Hawaii. A single Los Angeles to Kona round-trip flight has the following operating statistics:

Fuel	$11,985
Flight crew salaries	9,180
Airplane depreciation	4,335
Variable cost per passenger—business class	50
Variable cost per passenger—economy class	40
Round-trip ticket price—business class	530
Round-trip ticket price—economy class	270

It is assumed that the fuel, crew salaries, and airplane depreciation are fixed, regardless of the number of seats sold for the round-trip flight. If required round the answers to nearest whole number.

a. Compute the break-even number of seats sold on a single round-trip flight for the overall product, E. Assume that the overall product is 10% business class and 90% economy class seats.

Total number of seats at break-even

seats

b. How many business class and economy class seats would be sold at the break-even point?

Business class seats at break-even	seats
Economy class seats at break-even	seats

Answer 1

Contribution margin-business class	480		=530-50
Contribution margin-economy class	230		=270-40
Weighted average contribution margin	255		=(480*10%)+(230*90%)
a
Total fixed costs	25500		=11985+9180+4335
Divide by Weighted average contribution margin	255
Total number of seats at break-even	100	seats
b
Business class seats at break-even	10	seats	=100*10%
Economy class seats at break-even	90	seats	=100*90%