Break-Even Sales and Sales Mix for a Service Company Northern Green Airways prov

Question

Break-Even Sales and Sales Mix for a Service Company Northern Green Airways provides air transportation services between Seattle and San Diego. A single Seattle to San Diego round-trip flight has the following operating statistics: Fuel $5,057 Flight crew salaries 3,874 Airplane depreciation 1,829 Variable cost per passenger—business class 50 Variable cost per passenger—economy class 40 Round-trip ticket price—business class 580 Round-trip ticket price—economy class 280 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 is 10% business class and 90% economy class seats. Total number of seats at break-even 6750 seats b. How many business class and economy class seats would be sold at the break-even point? Business class seats at break-even 945,500 seats Economy class seats at break-even 136 per unit seats

Explanation / Answer

Solution :-

Selling price of product E :-

Variable cost of product E

Contribution Margin per seat :-

Contribution Margin = Selling price - Variable Cost

= $310 - $41

= $269

Total Fixed Cost :-

a). Break even point (In no. of Seats) :-

= Fixed cost / Contribution margin for a seat

= $10760 / $269

= 40 seats

b). 1) Business class seats at break even:-

= 40 seats * 10%

= 4 seats

2). Economy class seats at break even :-

= 40 seats * 90%

= 36 seats

Business class selling price ($580*10%) $58 Economin Class selling price ($280*90%) $252 Selling price of product E $310

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