Case Study 1 Week 3
Case Study 1 Week 3
Case Study 1
3/20/2014
“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
Number of seats per passenger train car
Average load factor (percentage of seats filled)
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?
contribution margin
$160.00
$90.00
contribution margin ratio
160
break-even point in passengers
3,150,000
35,000
break-even point in dollars
3,150,000
$5,600,000.00
B. What is the break-even point in number of passenger train cars per month?
Number of seats per cart
90.0
63.0
break evens point in # of passenger train car per mos.
35,000.0
63.0
556
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?
new contribution margin
190.0
70.0
120.0
New break-even point in passenger
3,150,000.0
120.0
26,250.0
New number of seats
90.0
54.0
New break evens point in # of passenger train car per mos.
26,250.0
54.0
486
D. What will be the new break-even point in passengers and in number of passengers train cars? Crude oil increase by $20 per barrel estimated variable cost per passenger will rise to $90
new contribution margin
160.0
90.0
70.0
New break-even point in passenger
3,150,000.0
70.0
45,000.0
New number of seats
90.0
63.0
New break evens point in # of passenger train car per mos.
45,000.0
63.0
714
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?