Reference no: EM132983143
Problem 1: If the company landed three new contract clients, thereby increasing projected flight miles by 20%, above the 280,000 base case level, to what level could variable costs rise, and the operation remain at a financial breakeven level?
Actual flight miles = Breakeven miles + 20% = 280,000 + 20% = 336,000 flight miles
Revised breakeven flight miles = FC / Revised contribution per flight mile = 336,000
Revised contribution per flight mile = 840,000 / 336,000 = $2.50 per flight mile
Revised variable cost = RR - Contribution margin = $9.00 - $2.50 = $6.50 per flight mile
If projected flight miles increased to 20% above the base case level of 280,000 flight miles, variable costs could rise to $6.50/flight mile and the operation would still remain at a financial breakeven level.
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