Question

Break-Even Sales and Sales Mix for a Service Company Zero Turbulence Airline provides air transportation services between Los Angeles, California; and Kona, Hawaii. A single Los Angeles to Kona round-trip flight has the following operating statistics: Fuel $5,640 Flight crew salaries 4,320 Airplane depreciation 2,040 Variable cost per passenger—business class 55 Variable cost per passenger—economy class 45 Round-trip ticket price—business class 555 Round-trip ticket price—economy class 295 It is assumed that the fuel, crew salaries, and airplane depreciation are fixed, regardless of the number of seats sold for the round-trip flight. If required round the answers to nearest whole number. a. Compute the break-even number of seats sold on a single round-trip flight for the overall product, E. Assume that the overall product is 20% business class and 80% economy class seats. Total number of seats at break-even seats b. How many business class and economy class seats would be sold at the break-even point? Business class seats at break-even seats Economy class seats at break-even seats

Answer 1

a)
Unit contribution margin of overall product (E):
Unit selling price of E [(20% × $555) + (80% × $295)	$      347.00
Unit variable cost of E [(20% × $55) + (80% × $45)	$        47.00
Unit contribution margin of E	$      300.00
Fixed cost of the  Los Angeles to Kona round-trip flight
Fuel	$   5,640.00
Flight crew salaries	$   4,320.00
Depreciation	$   2,040.00
Total fixed cost	$ 12,000.00
Break-even sales (units) of overall product
Break-even sales (units) of overall product = Fixed Costs/Unit Contribution Margin
Break-Even Sales (units) = $12000/$300	40	seats(Tickets)
b)
Business class break-even (40 seats × 20%)	8	seats
Economy class break-even (40 seats × 80%)	32	seats
Total break-even	40	seats