Question
Jet Airlines, a small two-plane passenger airline, has asked for your assistance in the analysis of its operations. Both planes seat 10 passengers each, and
Jet Airlines, a small two-plane passenger airline, has asked for your assistance in the analysis of its operations. Both planes seat 10 passengers each, and they fly commuters from Jet's base airport to the major city in the province, Centropolis. Each month 40 round-trip flights are made. Shown below is a recent month's activity in the form of a cost-volume-prot income statement.
Fare revenues (400 fares) $50,000
Variable costs
Fuel $17,900
Snacks and drinks 1,400
Landing fees 2,000
Supplies 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 (3 Points)
b) 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? (5 Points)
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