Case Study 1
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
a. What is the break-even point in passengers and revenues per month?
1. Break-even in passengers = 35,000
2. Break-even in revenues = $5,600,000
b. What is the break-even point in number of passenger train cars per month?
1. Break-even number of cars = 555.56 (556 rounded up)
c. If Springfield Express raises its average passenger fare to $ 190, it is estimated that the average load factor will decrease to 60 percent. What will be the monthly break-even point in number of passenger cars?
1. Break-even number of cars = 307.02 (308)
d. (Refer to original data.) Fuel cost is a significant variable cost to any railway. If crude oil increases by $ 20 per barrel, it is estimated that variable cost per passenger will rise to $ 90. What will be the new break-even point in passengers and in number of passenger train cars?
1. Break-even point in passengers = 45,000
2. Break-even number of cars = 714.29 (715)
e. Springfield Express has experienced an increase in variable cost per passenger to $ 85 and an increase in total fixed cost to $ 3,600,000. The company has decided to raise the average fare to $ 205. If the tax rate is 30 percent, how many passengers per month are needed to generate an after-tax profit of $ 750,000?
1. Number of passengers = 38,928.57 (38,929)
f. (Use original data). Springfield Express is considering offering a discounted fare of $ 120, which the...