Break-Even Sales and Sales Mix for a Service Company Zero Turbulence Airline pro

Question

Break-Even Sales and Sales Mix for a Service Company

Zero Turbulence Airline provides air transportation services between Los Angeles, California, and Kona, Hawaii. A single Los Angeles to Kona round-trip flight has the following operating statistics:

It is assumed that the fuel, crew salaries, and airplane depreciation are fixed, regardless of the number of seats sold for the round-trip flight.

a. Compute the break-even number of seats sold on a single round-trip flight for the overall enterprise product, E. Assume that the overall product mix is 10% business class and 90% economy class tickets.

b. How many business class and economy class seats would be sold at the break-even point?

Fuel $7,000 Flight crew salaries 3,200 Airplane depreciation 3,480 Variable cost per passenger—business class 140 Variable cost per passenger—economy class 120 Round-trip ticket price—business class 800 Round-trip ticket price—economy class 300

Explanation / Answer

Weighted average contribution margin per unit = (800-140)*10%+(300-120)*90% = 228

a) Break even point = 13680/228 = 60 Seats

b) Business class seats at break-even = 60*10% = 6 seats

Economy class seats at break-even = 60*90% = 54 Seats

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