Springfield Express has an opportunity to obtain a new route that would be trave

Question

Springfield Express has an opportunity to obtain a new route that would be traveled 20 times per month. The company believes it can sell seats at $ 175 on the route, but the load factor would be only 60 percent. Fixed cost would increase by $ 250,000 per month for additional personnel, additional passenger train cars, maintenance, and so on. Variable cost per passenger would remain at $ 70.
Should the company obtain the route?
How many passenger train cars must Springfield Express operate to earn pre-tax income of $ 120,000 per month on this route?
If the load factor could be increased to 75 percent, how many passenger train cars must be operated to earn pre-tax income of $ 120,000 per month on this route?
What qualitative factors should be considered by Springfield Express in making its decision about acquiring this route?

Explanation / Answer

A. Should the company obtain the route? a. Selling price of the seat $175 b. Load percentage (175*60%) $105 c. Variable cost $70 d. Contribution (105

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