Zero Turbulence Airline provides air transportation services between Los Angeles
ID: 2424287 • Letter: Z
Question
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:
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
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 product, E. Assume that the overall product mix is 10% business class and 90% economy class tickets.
Total number of seats at break-even seats ____???
b. How many business class and economy class seats would be sold at the break-even point?
Business class seats at break-even seats ____???
Economy class seats at break-even seats ____???
Explanation / Answer
FIXED COST = Fuel + Flight crew salaries +Airplane depreciation
= 7000 + 3200 + 3480
= 13680
Contribution = round trip ticket price – variable cost per passenger
Business class= 800 – 140 = 660
Economy class = 300 – 120 = 180
Product mix = 10% business class and 90% economy class tickets
Overall contribution= 660 *0.10 + 180 * 0.90 = 228
Contribution margin = 228/350*100 = 65
Total number of seats at break-even seats = 13680/228 = 60
b. Business class and economy class seats would be sold at the break-even point
Business class seats at break-even seats = 60* 0.10 = 6
Economy class seats at break-even seats = 60* 0.9 = 54
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