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. Help Sav Selling price per passenger per flight Variable cost per passenger per flight Fixed cost per flight Income tax rate $ 70 $ 29 $3,600 3ex 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 $1,470 per flight after taxes? Complete this question by entering your answers in the tabs below. Required A Required B Compute Frightproof's break-even point in number of passengers per flight. Break-even point passengers

Answer 1

Requirement

a. Breakeven point =72 pessenger per flight

b. Passenger to earn profit of $1470= 114 Passengers per flight

Explanation and Working

1)Breakeven point is the point of sale where there is no profit or loss to organisation and at this point total contribution equals to Fixed Cost

2)Contribution margin per unit is the difference of selling price and variable price , it is the margin where company cover all its variable cost.

3)As at breakeven point there will be no profit or loss, for nil income no tax will incurred , hence for calculating Breakeven point , tax rate is irrelevant.

a.Breakeven ( No of passenger)= Total Fixed Cost per Flight ÷ Contribution margin per passenger per Flight

=3600/(70-20)

=3600/50

Breakeven Point =72 passenger per flight

b. As required Profit is after tax is given we have to make it before take to calculate desired passenger

​​Tax rate is 30% = After tax profit is (100-30) =70%

Profit before tax =$1470/70%=$2100

Formula for sales to earn desire profit =[ Fixed cost + Profit ( before tax ) ] / Contribution margin

=(3600+2100)/50

No of passenger to earn profit of $1470=114 pessengers