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Acct 505 Case Study 1: Break-Even Point in Passengers and Revenues Per Month

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Acct 505
Case Study 1

Springfield express is a luxury passenger carrier in Texas. All seats are first class, and the following data are available:

|Number of seats per passenger train car | |90 |
|Average load factory (percentage of seats filled) |70% |
|Average full passenger fare | | |$160 |
|Average variable cost per passenger | |$70 |
|Fixed operating cost per month | | |$3,150,000 |

a. What is the break-even point in passengers and revenues per month?

Fixed cost = 3,150,000 160x = …show more content…

Should the company obtain the route?

The company should obtain the route if there are more than 2,380 passengers on this route every month. 120,000 = 175x – 70x – 250,000
X = 3,524 passengers
At 60% load = 90x0.6 = 54
Passenger cars = 3,524 / 54 = 65

2. How many passenger train cars must Springfield Express operate to earn pre-tax income of $ 120,000 per month on this route?

120,000 = 175x – 70x – 250,000
X = 3,524 passengers
At 60% load = 90x0.6 = 54
Passenger cars = 3,524 / 54 = 65

3. If the load factor could be increased to 75 percent, how many passenger train cars must be operated to earn pre-tax income of $ 120,000 per month on this route?

At 75% load = 90x0.75 = 67.5
Passenger cars = 3,524 / 67.5 = 52

4. What qualitative factors should be considered by Springfield Express in making its decision about acquiring this route?

Springfield Express may need to consider broadening their clientele base, and creating a business class or an economy train to bolster their contribution margin. They need to explore the number of people who actually travel by train rather than by airline, and of that how many can afford first class accommodations. Even one step further, can those who live along the start and

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