Homework SourseBreakEven 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:
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 10% business class and 90% economy class tickets.
b. How many business class and economy class seats would be sold at the break-even point?
| Fuel | $7,000 |
| Flight crew salaries | 3,200 |
| Airplane depreciation | 3,480 |
| Variable cost per passenger—business class | 140 |
| Variable cost per passenger—economy class | 120 |
| Round-trip ticket price—business class | 800 |
| Round-trip ticket price—economy class | 300 |
Solution
Weighted average contribution margin per unit = (800-140)*10%+(300-120)*90% = 228
a) Break even point = 13680/228 = 60 Seats
b) Business class seats at break-even = 60*10% = 6 seats
Economy class seats at break-even = 60*90% = 54 Seats
