Managerial Accounting 505
Case Study 1
Keller School Management, DeVry Online Course
Professor ???????
January 23, 2014
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
Formula :
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 = $160 - $70 =................. $90
Contribution margin ratio = $90 / $160 =................................... 56.25%
Break-even point in passengers = Fixed costs/Contribution Margin = $3,150,000/$90
Passengers which is =.................................. 35000
Break-even point in dollars = Fixed Costs/Contribution Margin Ratio = 3150000 / .5625=................. ............$5,600,000
Compute # of seats per train car (remember load factor?) =90 X 70% = 90 X .7 which =.............. 63
If you know # of BE passengers for one train car and the grand total of passengers, you can compute # of train cars (rounded) = 35000 / 63 = which is...................... 555.5 =556
C. Contribution margin =....................... $190- $70 = which is............... $120
Break-even point in passengers = fixed costs/ contribution margin=...