Comfi Airways, Inc., a small two-plane passenger airline, has asked for your assis- tance 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.

Exercises 273

Compute contribution margin, break-even point, and margin of safety.

(LO 2), AP

Compute net income under different alternatives.

(LO 2), AP

Compute break-even point and prepare CVP income statement.

(LO 2), AP

Instructions

Fare revenues (400 fares) Variable costs

Fuel

Snacks and drinks Landing fees Supplies and forms

Contribution margin Fixed costs

Depreciation Salaries Advertising

Airport hangar fees

Net income

$14,000 800 2,000 1,200

3,000 15,000 500 1,750

$48,000

18,000 30,000

20,250 $ 9,750

(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 100 fares could be generated. However,

total variable costs would increase by 20%. Should the fare decrease be adopted?