Aussie Trainlink runs passenger trains in Australia. Some of the trains are suburban, while there are a number of long-distance and interstate services. One such train is the Melbourne-Sydney XPT. The XPT runs twice daily in both directions. A one-way run from Melbourne to Sydney, or vice versa, is referred to as a "service". Therefore, the Melbourne-Sydney XPT runs four services daily.

The following costs apply:

Line access fee: $1,500 per service

Fuel: $7,500 per service

Passenger processing fee (eg. checking tickets, boarding support etc): $10 per passenger

Catering: $20 per passenger

Cleaning and cabin presentation: $750 per service

Crewing costs: $2,000 per service

Other costs: $1,000 per service

The train can carry up to 250 passengers and the normal ticket price is $200 per person.

a) What is the break-even quantity?

b) What will the total contribution margin ($) and margin of safety be if there are 170

people on board a service?

c) If a service has 120 on board and AussieTrainlink pays a 10% commission on HALF the tickets sold, what net profit will be generated?

d) Assume a tax rate of 25%. What price is required to make a profit of $3,000 if 130 passengers are expected on a given service?

e) CHALLENGE QUESTION. Aussie Trainlink is considering investing $300,000 in a major marketing campaign. It anticipates the campaign will result in an additional 5 to 10 passengers per service over a 90 day period. Should Aussie Trainlink proceed with the marketing campaign? Why?

f) CHALLENGE QUESTION. Suppose Aussie Trainlink wishes to introduce a first class travel option. This will involve additional fixed costs of $8,000 per day, and an additional per passenger cost of $95 per first class passenger. Aussie Trainlink believes it can sell a first class fare for $365 and expects 12.5% of passengers will opt for first class. How many regular passengers and how many first class passengers are required for Aussie Trainlink to make a profit of $12,000 per service