Regional 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 Regional'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.

Instructions
(a) Calculate the break-even point in
(1) Dollars
(2) Number of fares.
(b) Without calculations, determine the contribution margin at the break-even point.
(c) If fares were decreased by 10%, an additional 100 fares could be generated. However, total variable costs would increase by 35%. Should the fare decrease beadopted?

Transcribed Image Text:

Fare revenues (300 fares) Variable costs $45,000 ue Snacks and drinks Landing fees Supplies and forms $14,000 800 2,000 1,200 18,000 27,000 Contribution margin Fixed costs Depreciation Salaries Advertising Airport hanger fees 3,000 15,000 500 1,750 20,250 6,750 Net income