Question

In: Accounting

Break-even analysis attempts to determine the volume of sales necessary for a manufacturer to cover costs...

Break-even analysis attempts to determine the volume of sales necessary for a manufacturer to cover costs or to make revenue equal costs. It is helpful in setting prices, estimating profit or loss potentials, and determining the discretionary costs that should be incurred. The general formula for calculating break-even units is

Break-Even Units = Total Fixed Costs / (Unit Selling Price − Unit Variable Cost)

1. Use the formula to calculate how many cups of coffee an airport café would need to sell to break even if fixed costs are $6,000, a cup of coffee costs $0.50 to make, and each cup sells for $3.00.

For airlines, costs are mainly fixed, variable cost is negligible, and break-even is calculated for load factor instead of units. The formula for calculating break-even load factor is:

Break-Even Load Factor = Cost per Available Seat Mile / Yield per Passenger Mile

2. Given total operating cost of $1.6 million and 8.5 million available seat miles, calculate the cost per available seat mile (CASM).

3. What is the break-even load factor if CASM is $0.21 and the fare is $0.35 per mile? For this calculation, the yield is the same as the fare.

4. In Airline fare sales will reduce the yield. You can expect yield per passenger mile to drop about 10% for each month of fare sale. Calculate the break-even load factor if CASM is $0.21, regular fare is $0.35 per mile, and you are offering a two-month fare sale.

5. What impact might a 4% increase in compensation have on the break-even load factor for an airline?

Solutions

Expert Solution

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

Break-even Analysis : Break-even analysis attempts to determine the volume of sales necessary for a manufacturer...
Break-even Analysis : Break-even analysis attempts to determine the volume of sales necessary for a manufacturer to cover costs, or to make revenue equal costs. It is helpful in setting prices, estimating profit or loss potentials, and determining the discretionary costs that should be incurred. The general formula for calculating break-even units is: Break-even Units = ( Total fixed costs ) / ( Unit selling price - Unit variable cost ) In StratSim, total fixed costs can be broken into...
Break-even analysis attempts to determine the volume of sales necessary for a business to cover costs, or to make revenue equal costs.
BREAK-EVEN ANALYSIS EXERCISEBreak-even analysis attempts to determine the volume of sales necessary for a business to cover costs, or to make revenue equal costs. It is helpful in setting prices, estimating profit or loss potentials, and planning for the coming period.The general formula for calculating break-even units is:Break-even Units = Fixed Costs / Price – Unit Variable Cost1. An important distinction is made in the calculation between fixed and variable costs. Fixed costs do not change with the units sold (at...
A break-even analysis can be used to determine the amount of sales volume a business needs...
A break-even analysis can be used to determine the amount of sales volume a business needs to start making a profit. List the formula used to conduct a break-even analysis and explain each component. Provide a real-world example of how the break-even analysis and formula could be applied.
Determine the amount of sales. (Units) that would be necessary under the break even sales under...
Determine the amount of sales. (Units) that would be necessary under the break even sales under present and proposed conditions. Darby company, operating at full capacity, sold 109,350 units at a price of $69 per unit during the current year. It’s income statement for the current year is as follows: Sales. $7,545,150 Cost of goods sold. 3,819,150 Gross profit. $3,819,150 Expenses: Selling expense. $1,863,000 Administrative expense. 1,863,000 Total expense. 3,726,00 Income from operations. $93,150 The division of cost between fixed...
Determine the amount of sales (units) that would be necessary under Break-Even Sales Under Present and...
Determine the amount of sales (units) that would be necessary under Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 91,800 units at a price of $90 per unit during the current year. Its income statement for the current year is as follows: Sales $8,262,000 Cost of goods sold 4,080,000 Gross profit $4,182,000 Expenses: Selling expenses $2,040,000 Administrative expenses 2,040,000 Total expenses 4,080,000 Income from operations $102,000 The division of costs between fixed and variable...
Determine the amount of sales (units) that would be necessary under Break-Even Sales Under Present and...
Determine the amount of sales (units) that would be necessary under Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 116,100 units at a price of $108 per unit during the current year. Its income statement for the current year is as follows: Sales $12,538,800 Cost of goods sold 6,192,000 Gross profit $6,346,800 Expenses: Selling expenses $3,096,000 Administrative expenses 3,096,000 Total expenses 6,192,000 Income from operations $154,800 The division of costs between fixed and variable...
Determine the amount of sales (units) that would be necessary under Break-Even Sales Under Present and...
Determine the amount of sales (units) that would be necessary under Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 99,900 units at a price of $108 per unit during the current year. Its income statement for the current year is as follows: Sales $10,789,200 Cost of goods sold 5,328,000 Gross profit $5,461,200 Expenses: Selling expenses $2,664,000 Administrative expenses 2,664,000 Total expenses 5,328,000 Income from operations $133,200 The division of costs between fixed and variable...
Determine the amount of sales (units) that would be necessary under Break-Even Sales Under Present and...
Determine the amount of sales (units) that would be necessary under Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 113,400 units at a price of $99 per unit during the current year. Its income statement for the current year is as follows: Sales $11,226,600 Cost of goods sold 5,544,000 Gross profit $5,682,600 Expenses: Selling expenses $2,772,000 Administrative expenses 2,772,000 Total expenses 5,544,000 Income from operations $138,600 The division of costs between fixed and variable...
Determine the amount of sales (units) that would be necessary under Break-Even Sales Under Present and...
Determine the amount of sales (units) that would be necessary under Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 72,900 units at a price of $45 per unit during the current year. Its income statement for the current year is as follows: Sales $3,280,500 Cost of goods sold 1,620,000 Gross profit $1,660,500 Expenses: Selling expenses $810,000 Administrative expenses 810,000 Total expenses 1,620,000 Income from operations $40,500 The division of costs between fixed and variable...
Determine the amount of sales (units) that would be necessary under Break-Even Sales Under Present and...
Determine the amount of sales (units) that would be necessary under Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 79,650 units at a price of $51 per unit during the current year. Its income statement for the current year is as follows: Sales $4,062,150 Cost of goods sold 2,006,000 Gross profit $2,056,150 Expenses: Selling expenses $1,003,000 Administrative expenses 1,003,000 Total expenses 2,006,000 Income from operations $50,150 The division of costs between fixed and variable...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT