Sheila Longchamp Week 3- Managerial Accounting 22-Jan-12 Solution: a) Break-even point: Fixed operating cost per month Average

full passenger fare Average variable cost per passenger Contribution Margin Contribution Margin Ratio (90 / 160) Break-even point in Passenger (3,150,000 / 90) Break-even point in revenue (3,150,000 / 56.25%)

$ 3,150,000 $ $ $ 160 70 90 56.25%

35,000 $ 5,600,000

b)

Break-even point in Passenger train cars =35,000/(90*70%) Break-even point in Passenger = 3,150,000/(190-70) Break-even point in Passenger train cars =26,250/(90*60%) Average full passenger fare Average variable cost per passenger Contribution Margin Break-even point in Passenger Break-even point in Passenger train cars =45,000/(90*70%) $ $ $

555.56 26,250

c)

486.11 160.00 90.00 70.00 45,000

d)

714.29 $ $ $ 205.00 85.00 120.00

e)

Average full passenger fare Average variable cost per passenger Contribution Margin New Fixed cost Required Profit before tax (750,000/0.7) Break-even point in Passenger

$ 3,600,000 $ 1,071,429 38,929 $ $ $ 120.00 85.00 35.00

f)

Average Discounted passenger fare Average variable cost per passenger Contribution Margin

Number of trains in a month Passenger per train Total Passnger Load factor increased by Number of Passenger Loaded due to discount Total Contribution for discounted passenger Additional Advertising cost Increase in pre-tax income g) Average full passenger fare Average variable cost per passenger Contribution Margin New Rout travels per month Number of Passengers in total per month Total Contribution Margin Additional fixed cost Net loss 1) 2) No, the route should not be obtained. Required pre-tax income Required passengers to earn required income Break-even point in Passenger train cars =(250000+120000)/(90*75%) $ $ $ $ $ $ $ $ $ $

1500 90 135,000 10% 13,500 472,500 180,000 292,500

175.00 70.00 105.00 20 times 1,080 113,400 250,000 (136,600)

120,000 3,524

3)

5,481

4)

Qualitative Factors: a)effect on employee morale, schedules and other internal elements b) relationships with and commitments to suppliers c) effect on present and future customers d) long-term future effect on profitability