Question

Comfi Airways, Inc., a small two-plane passenger airline, has asked for your assistance in some basic...

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

Homework Answers

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
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