Please answer C1 Comfi Airways, Inc., a small two-plane passenger airline, has a

Question

Please answer C1

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.

(a) Calculate the break-even point in (1) dollars and (2) number of fares. (Round answers to 0 decimal place, e.g. 1,225.)

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

17,556

(c) If fares were decreased by 10%, an additional 100 fares could be generated. However, total variable costs would increase by 20%. (Round answers to 0 decimal place, e.g. 1,225.)

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

(2) Should the fare decrease be adopted?

Fare revenues (400 fares) $47,100 Variable costs     Fuel $16,423     Snacks and drinks 760     Landing fees 1,890     Supplies and forms 1,180 20,253 Contribution margin 26,847 Fixed costs     Depreciation 3,040     Salaries 12,396     Advertising 390     Airport hanger fees 1,730 17,556 Net income $9,291

Explanation / Answer

Answers to (a) and (b) are all correct.

(c) (1) The Net Income increases to $11127.90

Revenues 500 * 105.975 = $52987.50

Less: Variable cost 20253 * 1.20 = 24303.60

Contribution = 28683.90

Less: Fixed costs = 17556

Net Income = 11127.90

(2) Yes, the fare decrease should be adopted as it increases the net income.

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