# Question 2 Comfi Airways, Inc., a small two-plane passenger airline, has asked for your assistance in...

Question 2 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. assement de trinajohasem sikerhere are istorice \$48,000 Fare revenues (400 passenger flights) Variable costs Fuel \$13,390 790 2,000 Snacks and drinks Landing fees Supplies and forms Contribution margin Fixed costs 1,100 17,280 30,720 Depreciation 3,100 13,900 Salaries Advertising 600 Airport hanger fees 1,600 19,200 \$11,520 Net income
Calculate the break-even point in dollars. Break-even point Calculate the break-even point in number of passenger flights. Break-even point flights Without calculations, determine the contribution margin at the break-even point. Break-even point 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 to \$ (2) Should the ticket price decrease be adopted? Click if you would like to Show Work for this question: Open Show Work

(1)

Contribution margin ratio = contribution margin/sales

= \$30720/\$48000 = 64%

Break even point (dollar sales) = fixed expenses/contribution margin ratio

= \$19200/64%

= \$30000

(2)

Contribution margin per unit = \$30720/400 = 76.8

Break even point (unit sales) = fixed expenses/contribution margin per unit

= \$19200/\$76.8

= 250 flights

(3)

contribution margin at break even point is always equal to fixed expenses.

Therefore,

contribution margin = \$19200

(4)

Unit ticket price = \$48000/400 = \$120

new ticket price = \$120 x 90% = \$108

new number of passenger flights = 400 x 125% = 500

new total variable cost = \$17280 x 125% = \$21600

therefore,

net income = (500 x \$108) - \$21600 - \$19200

= \$13200

net income increases to \$13200 (from earlier \$11520)

ticket price decrease should be adopted.

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