# Managerial Accounting 505 Case Study

Managerial Accounting 505

Case Study 1

Keller School Management, DeVry Online Course

Professor January 23, 2014 Springfield Express is a luxury passenger carrier in Texas. All seats are first class, and the following data are available:

Number of seats per passenger train car 90

Average load factor (percentage of seats filled) 70%

Average full passenger fare $ 160

Average variable cost per passenger $ 70

Fixed operating cost per month $3,150,000

Formula :

Revenue = Units Sold * Unit price

Contribution Margin = Revenue – All Variable Cost

Contribution Margin Ratio = Contribution Margin/Selling Price

Break Even Points in Units = (Total Fixed Costs + Target Profit )/Contribution Margin

Break Even Points in Sales = (Total Fixed Costs + Target Profit )/Contribution Margin Ratio

Margin of Safety = Revenue – Break Even Points in Sales

Degree of Operating Leverage = Contribution Margin/Net Income

Net Income = Revenue – Total Variable Cost – Total Fixed Cost

Unit Product Cost using Absorption Cost = (Total Variable Cost + Total Fixed Cost)/# of units

A. Contribution margin per passenger = $160 – $70 =…………….. $90

Contribution margin ratio = $90 / $160 =…………………………….. 56.25%

Break-even point in passengers = Fixed costs/Contribution Margin = $3,150,000/$90

Passengers which is =……………………………. 35000

Break-even point in dollars = Fixed Costs/Contribution Margin Ratio = 3150000 / .5625=…………….. …………$5,600,000

Compute # of seats per train car (remember load factor?) =90 X 70% = 90 X .7 which =………….. 63

If you know # of BE passengers for one train car and the grand total of passengers, you can compute # of train cars (rounded) = 35000 / 63 = which is…………………. 555.5 =556

C. Contribution margin =………………….. $190- $70 = which is…………… $120

Break-even point in passengers = fixed costs/ contribution margin=…