Comfi 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 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.
| Fare revenues (400 fares) |
|
|
|
$46,500 |
| Variable costs |
|
|
|
|
| Fuel |
|
$16,315 |
|
|
| Snacks and drinks |
|
770 |
|
|
| Landing fees |
|
1,800 |
|
|
| Supplies and forms |
|
1,110 |
|
19,995 |
| Contribution margin |
|
|
|
26,505 |
| Fixed costs |
|
|
|
|
| Depreciation |
|
2,940 |
|
|
| Salaries |
|
14,196 |
|
|
| Advertising |
|
420 |
|
|
| Airport hanger fees |
|
1,710 |
|
19,266 |
| Net income |
|
|
|
$7,239 |
(a) Calculate the break-even point in (1) dollars and (2) number of fares. (Round answers to 0 decimal place, e.g. 1,225.)
| 1. |
|
Break-even point |
|
$
|
|
| 2. |
|
Break-even point |
|
|
fares |
(b) Without calculations, determine the contribution margin at the break-even point.
| 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%. (Round answers to 0 decimal place, e.g. 1,225.)
(1) How much would net income be impacted by this change?
| Net income decreases / increases to $ |
(2) Should the fare decrease be adopted? No / Yes