Case Study 2
Springfield Express is a luxury passenger carrier in Texas. All seats are first class, and the following data are available:
Number of seats per passenger train car 90
Average load factor (percentage of seats filled) 70%
Average full passenger fare $ 160
Average variable cost per passenger $ 70
Fixed operating cost per month $3,150,000
Revenue = Units Sold * Unit price
Contribution Margin = Revenue All Variable Cost
Contribution Margin Ratio = Contribution Margin/Selling Price
Break Even Points in Units = (Total Fixed Costs + Target Profit )/Contribution Margin
Break Even Points in Sales = (Total Fixed Costs + Target Profit )/Contribution Margin Ratio
Margin of Safety = Revenue – Break Even Points in Sales
Degree of Operating Leverage = Contribution Margin/Net Income
Net Income = Revenue Total Variable Cost Total Fixed Cost
Unit Product Cost using Absorption Cost = (Total Variable Cost + Total Fixed Cost)/# of units
a. Contribution margin per passenger =?
Contribution margin ratio =?
Break-even point in passengers = Fixed costs/Contribution Margin =
Break-even point in dollars = Fixed Costs/Contribution Margin Ratio =
b. Compute # of seats per train car (remember load factor?)
If you know # of BE passengers for one train car and the grand total of passengers, you can compute # of train cars (rounded) =?
c. Contribution margin =?
Break-even point in passengers = fixed costs/ contribution margin
train cars (rounded) =?
d. Contribution margin =?
Break-even point in passengers = fixed costs/contribution margin
train cars ( rounded) = ?
e. Before tax profit less the tax rate times the before tax profit = after-tax income = $ ?
Then, proceed to compute # of passengers -=?
f. # of discounted seats = ?
Contribution margin for discounted fares X # discounted seats = $ each train X$ ? train cars per day X ? days per month= $? minus $ additional fixed costs = $? pretax income.
Compute Contribution margin
# seats X $ X # train cars = $ ?
Increased fixed cost ( ?)
Pretax gain (loss) on new route $
2 and 3. Compute # of passengers and train cars using computation approaches employed in some of the above problems.
4. Springfield should consider such things as (Think of qualitative factors that are important. In other words, not the numbers but other things that have to be considered, e.g., risks)