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 $11,506

Flight crew salaries 8,813

Airplane depreciation 4,161

Variable cost per passenger—business class 45

Variable cost per passenger—economy class 35

Round-trip ticket price—business class 515

Round-trip ticket price—economy class 285

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

	Business class	Economy Class
Selling price per unit	515	285
Variable costs per unit	45	35
Contribution Margin per unit	470	250
Sales Mix	10%	90%
Weighted average contribution margin	272.00
Break even number of seats = Total Fixed costs/Weighted average Contribution Margin per ticket
=(11506+8813+4161)/272
90	tickets
Business class	9
Economy Class	81

в Business class Economy Class 285 515 45 35 1 2 Selling price per unit 3 Variable costs per unit 4. Contribution Margin per unit 5 Sales Mix 6 Weighted average contribution margin =B2-B3 =C2-C3 0.9 0.1 =B4*B5+C4*C5 tickets 8 Break even number of seats - Total Fixed costs/Weighted average Contribution Margin per ticket 9 =(11506+8813+4161)/272 10 =(11506+8813+4161)/272 11 12 Business class 13 Economy Class =A10*10% =B12*9 14