BreakEven Sales and Sales Mix for a Service Company Zero Tur

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: Fuel $10,396 Flight crew salaries 7,963 Airplane depreciation 3,761 Variable cost per passenger—business class 45 Variable cost per passenger—economy class 35 Round-trip ticket price—business class 545 Round-trip ticket price—economy class 305 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. If required round the answers to nearest whole number. 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. 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

Solution

Fixed cost = 10396+7963+3761 = 22120

Weighted average contribution margin per unit = (545-45*20%)+(305-35*80%) = 316 per unit

a) Break even point = 22120/316 = 70 per seats

b) Business class break even = 70*20% = 14 Seats

Economy class break even = 70*80% = 56 Seats