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.
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Fare revenues (400 fares) Variable costs Fuel
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$14,000
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$48,000
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Snacks and drinks
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800
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|
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Landing fees
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2,000
|
|
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Supplies and forms
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1,200
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18,000
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Contribution margin Fixed costs
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30,000
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Depreciation
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3,000
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|
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Salaries
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15,000
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|
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Advertising
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500
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|
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Airport hangar fees
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1,750
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20,250
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Net income
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$9,750
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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 100 fares could be generated. However, total variable costs would increase by 20%. Should the fare decrease be adopted?