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	$7,614
Flight crew salaries	5,832
Airplane depreciation	2,754
Variable cost per passenger—business class	40
Variable cost per passenger—economy class	30
Round-trip ticket price—business class	580
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	540		=580-40
Contribution margin-economy class	240		=270-30
Weighted average contribution margin	270		=(540*10%)+(240*90%)
a
Total fixed costs	16200		=7614+5832+2754
Divide by Weighted average contribution margin	270
Total number of seats at break-even	60	seats
b
Business class seats at break-even	6	seats	=60*10%
Economy class seats at break-even	54	seats	=60*90%