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.

Instructions

a. Calculate the break-even point in (1) dollars and (2) number of passenger flights.

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

c. If ticket prices were decreased by 10%, passenger flights would increase by 25%. However, total variable costs would increase by the same percentage as passenger flights. Should the ticket price decrease be adopted?

Transcribed Image Text:

Fare revenues (400 passenger flights) $48,000 Variable costs Fuel $14,000 Snacks and drinks 800 2,000 Landing fees Supplies and forms Contribution margin 1,200 18,000 30,000 Fixed costs Depreciation 3,000 Salaries 15,000 Advertising 500 Airport hangar fees 1,750 20,250 $ 9,750 Net income