Break-Even Sales and Sales Mix for a Service Company Zero Turbulence Airline pro

Question

Break-Even Sales and Sales Mix for a Service Company

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:

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.

b. How many business class and economy class seats would be sold at the break-even point?

Fuel $9,814 Flight crew salaries 7,517 Airplane depreciation 3,549 Variable cost per passenger—business class 40 Variable cost per passenger—economy class 30 Round-trip ticket price—business class 580 Round-trip ticket price—economy class 260

Explanation / Answer

Fixed cost = 9814+7517+3549 = 20880

Weighted average contribution margin per unit = (580-40*10%)+(260-30*90%) = 261 per unit

a) Total number of seats at break even = 20880/261 = 80 seats

b) Business class seats at break even = 80*10% = 8 seats

Economy class seats at break even = 80*90% = 72 seats

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