Seacoast Airlines problem PDF

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Summary

Common problem given by teachers,
Questions of the following:
Break-even point in units and revenue
break-even point in total
targeted profit after tax
opportunity costing
how many units required to make a profit
WITH CHECK FIGURES...

Description

Seacoast Airlines is a small local carrier that flies among Canada’s Atlantic provinces. All sales are economy and the following data are available: Average full passenger fare

$150

# seats on plane

120

Average load factor (# of seats occupied)

70%

Average VC per passenger

$40

FC per month

$1,800,000

Required: The following parts are independent. 1. What is the BEP in # of passengers and revenues? 2. What is the BEP in # of flights? 3. If Seacoast raises its average full passenger fare to $200, it is estimated that the load factor will decrease to 55%. What will be the new BEP in flights? 4. The cost of fuel is the largest variable cost. If fuel charges increase as expected, VC per passenger will rise to $60. What would be the new BEP in passengers and number of flights? 5. Seacoast has experienced an increase in VC per passenger to $50. And an increase in total monthly FC to $2M. The company decided to raise the average fare to $180. How many passengers would be needed to generate an after-tax profit of $600,000 assuming a 40% tax rate? 6. Seacoast is considering a seat sale. On those seats sold as part of the seat sale, the ticket price would only be $120. The company feels that this seat sale will increase the load factor to 80%. Only the additional seats will be sold at the discounted fare. Additional advertising costs to promote the seat sale will be $100,000. Calculate the pretax profit that this seat sale will generate in one month assuming that the airline will fly 40 flights per day and there are 30 days in the month. 7. Seacoast has an opportunity to obtain a new route. It feels that it can sell seats at $175, but the load factor is expected to be 60%. There are still 120 seats on the planes. Seacoast would fly this route 20 times per month. The additional fixed costs on this route would be $100,000 per month. VC per passenger would remain at $40. Based on this data, answer the following questions: a. Should the company obtain the route? Show calculations b. How many flights would Seacoast need to earn pre-tax profit of $57,500 per month on this route? c. If the load factor could be increased to 75%, how many flights per month would the company need to earn pre-tax profit of $57,500?

Check figures:

4

238.1

5

23,077

6

1,052,000

flights

passengers

additional profit from seat sale

7a

94,400

additional profit from new route

7b

16.2

# flights required

7c

12.96

# flights required...