Ac 505: Case Study Two
a) Contribution margin= Sales per unit – Varibale expenses per unit $160 – $70 $90 Break even point in passengers = Fixed expenses / Unit CM 3,150,000 / 90 35,000units Break even point in revenues per month = Unit sales to break even X Sales per unit 35,000 X $160 $5,600,000 b) Break even point in number of passenger cars per month * 90 X 70%35,000 / 63 63555. 5555556 or 556 Cars c) Break even point in number of passenger cars per month (New fare and Average load factor) *90X60%35,000 / 54 54648.
1481481 r 648 Cars d) Break even point in passengers (With increased variable cost) = Fixed expenses / Unit CM CM = $160 – $90 = $70 3,150,000 / 70 45,000 units Break even point in number of passenger cars per month *90 x 70%45,000 / 63 63714. 2857143 or 714 Cars e) After tax income = $ 750,000/ ( 1 – tax rate) $ 750,000/ ( 1 – 0. 30) $ 750,000 / 0. 70 $1,071,429 f) Net Income with discount = $ 495,000 Net Income with discount for normal operations = $ 5,355,000 Pre Tax Net Income = $ 5,850,000 ($495,000 + $5,355,000) g) ) No they should not Contribution margin = $175 – $70 or $105 per passenger 90X . 60 = 54 seats 54 X $105 X 20 train cars = $ 113,400 Incfreased fixed cost (250,000) Pretax loss on new route $(136,600) 2) $175X – $70X – $250,000 = $120,000 $105 X = $370,000 X = 3,524 passengers 3,524 / 54 = 65 train cars 3) Contribution margin = $105 per passenger 90 X . 75 = 67.
5 seats 67. 5 X $105 X 20 train cars = $141,750 $175X -70X – $250,000 = $120,000 $105X = $370,000 X = 3,524 passengers 3, 524 / 67. = 52 train cars 4) Qualitative factors are considerations in decision making, in addition to the quantitative or financial factors highlighted by incremental analysis. They are the factors relevant to a decision that are difficult to measure in terms of money. Some factors to consider is this situation may be: 1) Effect on employee morale, schedules, and other internal elements 2) Relationships with and commitments to suppliers 3) Effect on present and future customers 4) Long-term future effect on profitability
