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Determine the contribution margin at the break-even point

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Reference no: EM13889153

Comfi Airways, Inc., a small two-plane passenger airline, has asked for your assis- tance 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.

Fare revenues (400 fares) Variable costs Fuel

$14,000

$48,000

Snacks and drinks

800

Landing fees

2,000

Supplies and forms

1,200

18,000

Contribution margin Fixed costs

 

30,000

Depreciation

3,000

Salaries

15,000

Advertising

500

Airport hangar fees

1,750

20,250

Net income

 

$9,750

Instructions

(a) Calculate the break-even point in (1) dollars and (2) number of fares.

(b) Without calculations, determine the contribution margin at the break-even point.

(c) If fares were decreased by 10%, an additional 100 fares could be generated. However, total variable costs would increase by 20%. Should the fare decrease be adopted?

Reference no: EM13889153

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