Calculate break-even point and contribution margin.

Friendly 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 Friendly's base airport to the major city in the province, 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 fares)$50,000

Variable costs

Fuel $17,900

Snacks and drinks 1,400

Landing fees 2,000

upplies and forms 1,200 22,500

Contribution margin 27,500

Fixed costs

Depreciation 3,000

Salaries 15,000

Advertising 2,250

Airport hangar fees 1,750 22,000

Operating income$5,500

Instructions

(a)Calculate the break-even point in (1) dollars and (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 80 fares could be generated. However, total variable costs would increase by 20%. Should the fare decrease be adopted?