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:

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 20% business class and 80% economy class seats.

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

Fuel $9,080 Flight crew salaries 6,955 Airplane depreciation 3,285 Variable cost per passenger—business class 55 Variable cost per passenger—economy class 45 Round-trip ticket price—business class 515 Round-trip ticket price—economy class 275

Explanation / Answer

Solution:

9080 +6955+3285 = $19320 fixed cost per flight
19320 + 55(.2)s + 45(.8)s = Total cost for s passengers on one flight
19320 + 11s + 36s
19320 + 47s= Total cost for "s" passengers.

515(.2)s + 275(.8)s = gross revenue from s passengers on 1 flight
103s +220s =
323s= total gross revenue from "s" passengers on 1 flight

a) 19320 + 47s = 323s
19320 = 276s
s=70 seats sold

b) 70*0.2= 14 business seats at break-even point
70*0.8= 56 economy seat at break-even point

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