Question

Frightproof Commuter Airlines is considering adding a new flight to its current schedule from Metro to Hicksville. This route has the following prices and costs. Selling price per passenger per flight Variable cost per passenger per flight Fixed cost per flight Income tax rate $ во $ 30 $ 5,600 30% Required: a. Compute Frightproof's break-even point in number of passengers per flight. b. How many passengers per flight must Frightproof have to earn $2,170 per flight after taxes?

Answer 1

A. Breakeven point in units = Fixed cost/Contribution per unit.

Fixed cost = $ 5,600

Contribution per unit = Selling price per unit - variable cost per unit.

Contribution per unit = 80 - 30

Contribution per unit = $ 50 per unit.

Breakeven point in number of passenger per flight = 5,600/50

Breakeven point in number of passenger per flight = 112 passengers.

B. After tax profit = $ 2,170

Tax rate = 30%.

So, profit before tax = 2,170/70%

Profit before tax = $ 3,100.

Sales - variable cost = Fixed cost + profit before tax.

Let us assume number of passenger per flight be ' X' .

80 X - 30 X = 5,600 + 3,100

50 X = 8,700

X = 8,700/50

X = 174.

So, 174 passenger per flight is the correct answer.

SUMMARY:

A. Breakeven point in number = 112.

B. Number to achieve $ 2,170 after tax profit = 174.