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

Question

14.

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 20% business class and 80% economy class tickets.

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

Fuel $10,378 Flight crew salaries 7,949 Airplane depreciation 3,753 Variable cost per passenger—business class 50 Variable cost per passenger—economy class 40 Round-trip ticket price—business class 550 Round-trip ticket price—economy class 260

Explanation / Answer

Weighted average contribution margin per unit = (550-50*20%)+(260-40*80%) = 276 per unit

Break even point = 22080/276 = 80 seats

b) Bussiness class seats at break even = 80*20% = 16 seats

Economy class seats at break even = 80*80% = 64 seats

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