If fares were decreased by 10%, an additional 100 fares could be generated. Howe

Question

If fares were decreased by 10%, an additional 100 fares could be generated. However, total variable costs would increase by 20%.
(1) How much would net income be impacted by this change?

CALCULATOR PRINTER VERSION BACK NEXT Exercise 19-4 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. $45,600 Fare revenues (400 fares) Variable costs Snacks and drinks Landing fees Supplies and forms $15,698 790 2,070 1,050 19,608 25,992 Contribution margin Fixed costs Depreciation Salaries Advertising Airport hanger fees 3,030 12,741 420 1,650 17,841 $8,151 Net income

Explanation / Answer

Net income Fare revenues (500 *102.60) 51300 less:Vairable cost 23529.6 Contribution margin 27770.4 less: Fixed cost 17841 Net income 9929.4 increase in net income = 9929.40 -8,151 = $1,778.40

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