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		$13,120
Snacks and drinks		780
Landing fees		1,900
Supplies and forms		1,000		16,800
Contribution margin				31,200
Fixed costs
Depreciation		3,050
Salaries		16,250
Advertising		500
Airport hanger fees		1,650		21,450
Net income				$9,750

Calculate the break-even point in dollars.

Break-even point

$

  

  

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

Break-even point

flights

  

  

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

Break-even point

$

  

  

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

Calculation Answer Contribution Margin Ratio 31200/48000 X 100 65.00% Formula Contribution Margin X 100 Sales Fixed Cost Contribution Margin Ratio Contribution Margin Passenger flights Fixed Cost Contribution per passender flights 21450/65% $ Break-even point in dollars Contribution per passenger flights Break-even point in passender flights 33,000 31200/400 78 21450/78 275 passenger flights Contribution Margin = Fixed Cost + Income At break-even point, Income is 0. Thus Contribution Margin = Fixed Cost = $21,450 Fixed cost remains same all level of activities. 1 Calculation Total (108*500) Sales Less: Variable cost: Price = 48000/400 = 120 54,000 New price = 120 X 90% = 108 New passenger flights = 400 X 125% = 500 21,000 33,000 (16800*125%) $ Contribution Margin Less: Fixed cost: 21,450 11,550 Net Income $ $ Increase in net income = 11550 - 9750 = $1,800 Net income will increase by $1,800 2 Yes, because it increases the net income. Please give likes for the work. Thanks & Regards.