Question

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	$12,878
Flight crew salaries	9,864
Airplane depreciation	4,658
Variable cost per passenger—business class	65
Variable cost per passenger—economy class	50
Round-trip ticket price—business class	555
Round-trip ticket price—economy class	300

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 10% business class and 90% 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

Requirement a

Total number of seats at break-even

100

seats

Requirement b

Business class seats at break-even	10	seats
Economy class seats at break-even	90	seats

Explanation:

Particulars	Business class	Economy class
Selling price	$              555	$               300
Variable cost	$                65	$                 50
Contribution	$              490	$               250
Percentage	10%	90%
Weighted average contribution	274
Fixed cost	$27,400
Break even point (total) seats	100
Break even point (individually)	10 seats	90 seats

In case of any doubt, please comment.