Question

Comfi Airways, Inc., a small two-plane passenger airline, has asked for your assistance in some basic analysis of its operations. Both planes seat 10 passengers each, and they fly commuters from Comfi's base airport to the major city in the state, Metropolis. Each month, 40 round-trip flights are made. Shown below is a recent month's activity in the form of a cost-volume-profit income statement. $48,000 $17,040 780 2,100 1,200 Fare revenues (400 passenger flights) Variable costs Fuel Snacks and drinks Landing fees Supplies and forms Contribution margin Fixed costs Depreciation Salaries Advertising Airport hanger fees Net income 21,120 26,880 3,050 11,900 300 1,550 1,550 16,800 16,800 $10,080

1) If ticket prices were decreased by 10%, passenger flights would increase by 25%. However, total variable costs would increase by the same percentage as passenger flights.

(1) How much would net income be impacted by this change?

Net income $ ______

Answer 1

Fare revenue per passenger flight ($48,000/400)	$   120
Estimated fare revenue ($120*90%)	$   108
Estimated passenger flights (400*125%)	500

Fare revenues (500*$108)		$   54,000
Variable costs
Fules ($17,040*125%)	$   21,300
Snacks and drinks ($780*125%)	$        975
Landing fees ($2,100*125%)	$     2,625
Supplies and forms (1,200*125%)	$     1,500	$   26,400
Contribution margin		$   27,600
Fixed costs
Depreciation	$     3,050
Salaries	$   11,900
Advertising	$        300
Airport hanger fees	$     1,550	$   16,800
Net income		$   10,800

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