In: Accounting
Suppose a particular charter Airline has annual fixed costs of $3.2 million for its One B777 Aircraft (capacity of 400 seat)-that operates daily flights between Dubai (DXB) and Muscat (MCT). The average ticket fare per seat is $50, and average seat variable operating costs of $10 for each seat sold. The charter Airline operates daily all year long (365 days per year)?
1.Computation of Net income:
a) When all Seats are filled
No.of seats = 400
When half seats are filled = 400/2=200
Particulars | Fare per seat |
a) Number of seats=400 Total cost per year (Fare per seat*No.of 400 * 365days) |
b) When half seats are filled Total cost per year (Fare per seat*No.of 200 * 365days) |
Ticket fare / Sales price | $50 | $7,300,000 | $3,650,000 |
Less: Variable cost | (10) | (1,460,000) | ( 730,000) |
Contribution margin per seat | $40 | $5,840,000 | $2,920,000 |
Less: Fixed costs | ($3,200,000) | ($3,200,000) | |
Net Income/loss | $2,640,000 | ($280,000) |
2) Computation of Break even seats to be sold:
Break even point(seats to be sold) = Fixed cost / Contribution margin per seat per year
=$3,200,000 /( $40*365)
=$3,200,000 /$14600
= 219.18
break-even point in number of seats sold = 219 seats
What percentage load factor for the year is needed to break even
= Break even seats to be sold/Total capacity of seats to be filled
= 219/400
=54.75%