break even point and cvp income statement 460306

Regional Airways, Inc., a small two-plane passenger airline, has asked for your assistance in some basic analysis of its operations. Both planes seat 10 passengers each, and they fly commuters from Regional’s base airport to the major city in the state, Metropolis. Each month 40 round-trip flights are made. Shown on page 219 is a recent month’s activity in the form of a cost-volume-profit income statement.

Fare revenues (300 fares) $45,000

Variable costs

Fuel $14,000

Snacks and drinks 800

Landing fee 2,000

Supplies and forms 1,200 18,000

Contribution margin 27,000

Fixed cost

Depreciation 3,000

Salaries 15,000

Advertising 500

Airport hanger fees 1,750 20,250

Net income $ 6,750

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

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

If fares were decreased by 10%an additional 100 fares could be generated. However, variable costs would increase by 35%. Should the fare decrease be adopted?