Exercise 19-4 (Part Level Submission) Comfi Airways, Inc., a small two-plane pas
ID: 2568672 • Letter: E
Question
Exercise 19-4 (Part Level Submission) 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 Snacks and drinks Landing fees Supplies and forms $21,440 720 1,800 1,000 24,960 39,040 Contribution margin Fixed costs Depreciation Salaries Advertising Airport hanger fees 2,950 14,470 600 1,500 19,520 Net income $19,520Explanation / Answer
Computation of Contribution Margin Ratio
Contribution Margin
39040
Sales
64000
Contribuiton Margin Ratio (39040/64000)
61%
Computation of Break even Point in Dollars
Fixed Cost
19520
Contribution Margin Ratio
61%
Break even point in dollars (19520/61%)
32000
Computation of Break even Point in number of passenger flights
Fixed Cost
19520
Contribution Margin
39040
Number of Passenger flights
400
Contribution Margin Per Passenger Flight
97.6
Break even Point in number of passenger flights (19520/97.6)
200
Determination of the contribution margin at the break even point
at breakeven point, Fixed costs = Contribution margin
Therefore, Contribution Margin = $ 19,520
Passenger Flights
Fare
Existing
400
160
Proposed
500
[400*125%]
144
[160*90%]
Fare Revenue (500*144)
72000
Less: Variable Costs
Fuel (21440*125%)
26800
snacks and drinks (720*125%)
900
Landing Fees (1800*125%)
2250
Supplies and Forms (1000*125%)
1250
Total Variable Costs
31200
Contribution
40800
Fixed Costs
19520
Net Income
21280
(1)Net Income increases to $ 21280
(2)Should the ticket price decrease be adopted? YES
Computation of Contribution Margin Ratio
Contribution Margin
39040
Sales
64000
Contribuiton Margin Ratio (39040/64000)
61%
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