21-3 Excercises & Problems Break-Even Sales and Sales Mix for a Service Company

Question

21-3 Excercises & Problems 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: Fuel Flight crew salaries Airplane depreciation Variable cost per passenger-business class Variable cost per passenger-economy class Round-trip ticket price-business class Round-trip ticket price-economy class 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 20% business class and 80% economy class seats Total number of seats at break-even b. How many business class and economy class seats would be sold at the break-even point? Business class seats at break-even Economy class seats at break-even $8,234 6,307 2,979 35 545 275 seats seats seats

Explanation / Answer

(a) Computation of the break-even number of seats sold on a single round-trip flight for the overall enterprise product,

Unit contribution margin of overall product

Unit selling price of E [(20% × $545) + (80% × $275)] = $ 329

Unit variable cost of E [(20% × $45) + (80% × $35)] = $ 37

Unit contribution margin of E = $ 292

Fixed costs of the Seattle to San Diego round-trip flight:

Fuel $ 8234

Flight crew salaries $ 6307

Airplane depreciation $ 2979

Total fixed costs $ 17,520

Break-even in sales (units) of overall product:

Break-Even Sales (units) = Fixed costs / Unit contribution margin

= $ 17,520 / $292

= 60 Seats

Total number of seats at break-even = 60 Seats                                                        

(b) Business class and economy class seats would be sold at the break-even point

Business class seats at break-even            = 12 Seats (60 seats x 20%)

Economy class seats at break-even           = 48 Seats (60 seats x 80%)

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