Answer:
Comfi Airways, Inc.
a. Break-even point in sales dollars = $30,000
b. Break-even point in passenger flights = 250
c. Contribution at break-even point = fixed costs = $16,950
d. Net income will increase to $10,950 (an increase of $780).
e. Yes. The ticket price decrease should be adopted.
Explanation:
a) Data and Calculations:
Number of airplanes = 2
Maximum number of passengers per flight = 10
Number of round-trip flights each month = 40
Number of passenger flights = 400 (40 * 10)
Total Unit
Fare revenues $48,000 $120 ($48,000/400)
Variable costs:
Fuel $16,960
Snacks and drinks 720
Landing fees 2,100
Supplies and forms 1,100 20,880 $52.20 ($20,880/400)
Contribution margin 27,120 $67.80 ($27,120/400)
Fixed costs:
Depreciation 3,100
Salaries 11,600
Advertising 600
Airport hanger fees 1,650 $16,950
Net income $10,170
Contribution margin ratio = $67.80/$120 = 0.565
Break-even point in sales dollars = Fixed costs/Contribution margin ratio
= $16,950/0.565
= $30,000
Break-even point in sales units = Fixed costs/Contribution per unit
= $16,950/$67.80
= 250 passenger flights
Contribution at break-even point = Fixed costs = $16,950
Decrease of ticket prices by 10% from $120 to $108 ($120 * 90%)
Passenger flights increased to 500 (400 * 1.25)
Fare revenues = $54,000 (500 * $108)
Total variable costs increased to $26,100 ($20,880 * 1.25)
Contribution = $27,900
Fixed costs = $16,950
Net income = $10,950
Increase in net income = $780 ($10,950 - $10,170)
