Reference no: EM132983140

Problem 1: If High Point could renegotiate its fuel contract and thus decrease variable costs per flight mile by 8%, how much could flight miles decrease, and the operations remain at a breakeven level (assuming all the other base case financial facts did not change)?

New VC (reduced by 8%) = $6.00 (0.92) = $5.52

Revised contribution per flight mile = RR - VC = $9.00 - $5.52 = $3.48

New Breakeven flight miles = FC / Revised contribution per flight mile = 840,000 / 3.48 = 241,379 flight miles

Decrease by new breakeven flight miles = 280,000 - 241,379 = 38,621 flight miles

In comparison to the base case breakeven annual flight miles of 280,000 flight miles, the breakeven annual flight miles required with adjusted variable costs of $5.52 per flight mile allows for a decrease of 38,621 annual flight miles to remain at a breakeven level.