Question

Comfi Airways, Inc., a small two-plane passenger airline, has asked for your assistance in some basic analysis of its operations. Both planes seat 10 passengers each, and they fly commuters from Comfi’s base airport to the major city in the state, Metropolis. Each month, 40 round-trip flights are made. Shown below is a recent month’s activity in the form of a cost-volume-profit income statement.

Fare revenues (400 passenger flights)				$48,000
Variable costs
Fuel		$14,000
Snacks and drinks		800
Landing fees		2,000
Supplies and forms		1,200		18,000
Contribution margin				30,000
Fixed costs
Depreciation		3,000
Salaries		15,000
Advertising		500
Airport hanger fees		1,750		20,250
Net income				$9,750

Calculate the break-even point in dollars.

Break-even point

$

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Calculate the break-even point in number of passenger flights.

Break-even point

flights

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Without calculations, determine the contribution margin at the break-even point.

Break-even point

$

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If ticket prices were decreased by 10%, passenger flights would increase by 25%. However, total variable costs would increase by the same percentage as passenger flights. (1) How much would net income be impacted by this change? Net income increasesdecreases to $ (2) Should the ticket price decrease be adopted? NoYes

Answer 1

1
Fixed costs	20250
Divide by Contribution margin ratio	62.50%	=30000/48000
Break-even point	32400
2
Fixed costs	20250
Divide by Contribution margin per passenger flight	75.00	=30000/400
Break-even point	270	flights
3
Break-even point	20250
4
Revised fare per passenger flight	108	=(48000/400)*(1-10%)
Revised passenger flights	500	=400*1.25
Variable costs per passenger flight	45	=18000/400
Fare revenues	54000	=500*108
Less: Variable costs	22500	=500*45
Contribution margin	31500
Less: Fixed costs	20250
Net income	11250
Net income increases to $11250
Yes, the ticket price decrease be adopted