Question

Comfi Airways, Inc., a small two-plane passenger airline, has asked for your assistance in some basic analysis of its operations. Both planes seat 10 passengers each, and they fly commuters from Comfi’s base airport to the major city in the state, Metropolis. Each month, 40 round-trip flights are made. Shown below is a recent month’s activity in the form of a cost-volume-profit income statement.

Fare revenues (400 passenger flights) $64,000

Variable costs

Fuel $22,720

Snacks and drinks 720

Landing fees 1,800

Supplies and forms 1,000 =26,240

Contribution margin 37,760

Fixed costs Depreciation 2,950

Salaries 14,202

Advertising 400

Airport hanger fees 1,800 =19,352

Net income $18,408

Calculate the break-even point in dollars. T

Calculate the break-even point in number of passenger flights.

Without calculations, determine the contribution margin at the break-even point.

If ticket prices were decreased by 10%, passenger flights would increase by 25%. However, total variable costs would increase by the same percentage as passenger flights.

(1) How much would net income be impacted by this change? Net income to $

(2) Should the ticket price decrease be adopted?

My answers do far:

1. 32800

2. 205

3. $19,352

4. Increases to _____ yes should be adopted I can not figure what the net income increases to. Please help

I figured the answer on my own just read the question over added 25%v to variable cost total then subtracted it from 72000 then subtracted 19352 which got 19848???

Answer 1

1) Calculatiion of Break Even Point in Dollar :-

Contribution Margin % = Contribution Margin / Sales

= $37760 / $64000

= 0.59 or 59%

Break Even Point = Fixed Cost / Contribution Margin %

= $19352 / 0.59

= $32800

2) Contribution Margin Per Fight :-

= Contribution Margin / No. of Passenger Flights

= $37760 / 400

= $94.4 Per Passenger Flights

Break Even Point = Fixed Cost / Contribution Margin Per Flight

= $19352 / $94.4

= 205 Passenger Flights

3) Contribution Margin at Break Even Point :-

At Break Even Point, Contribution Margin and Fixed Cost both are equal.

Than, Contribution Margin = $19352

4) Old Ticket Price = $64000 / 400 = $160 per Passenger Flight

New Ticket Price = $160 - ($160*10%) = $144

New No. of Passenger Flights = 400 + (400*25%)

= 500

New Variable Cost = $26240 + ($26240*25%)

= $26240 + $6560

= $32800

Calculation of Net Income :-

= Sales - Variable Cost - Fixed Cost

= (500*$144) - $32800 - $19352

= $72000 - $32800 - $19352

= $19848

%Increase in Net Income =(New Net income - Old Net Income)/Old Net Income

=($19848 - $18408)/ $18408

= $1440 / $18408

= 7.82%

(ii) Yes, The Ticket Price Decrease be Adopted.