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
a. What is the break-even point in passengers and revenues per month?
b. What is the break-even point in number of passenger train cars per month?
c. If Springfield Express raises its average passenger fare to $ 190, it is estimated that the average load factor will decrease to 60 percent. What will be the monthly break-even point in number of passenger cars?
d. (Refer to original data.) Fuel cost is a significant variable cost to any railway. If crude oil increases by $ 20 per barrel, it ...view middle of the document...
Only the additional seats would be sold at the discounted fare. Additional monthly advertising cost would be $ 180,000. How much pre-tax income would the discounted fare provide Springfield Express if the company has 50 passenger train cars per day, 30 days per month?
g. Springfield Express has an opportunity to obtain a new route that would be traveled 20 times per month. The company believes it can sell seats at $ 175 on the route, but the load factor would be only 60 percent. Fixed cost would increase by $ 250,000 per month for additional personnel, additional passenger train cars, maintenance, and so on. Variable cost per passenger would remain at $ 70.
1. Should the company obtain the route?
2. How many passenger train cars must Springfield Express operate to earn pre-tax income of $ 120,000 per month on this route?
3. If the load factor could be increased to 75 percent, how many passenger train cars must be operated to earn pre-tax income of $ 120,000 per month on this route?
4. What qualitative factors should be considered by Springfield Express in making its decision about acquiring this route?
Grading Rubric for Case Study II:
Category Points % Description
Documentation & Formatting 5 11% Case Study will be completed in Word or Excel and contain necessary formulas to receive maximum credit
Organization & Cohesiveness 5 11% Calculations for all parts should be organized and correctly labeled. In a quality case study, all questions should be addressed in a clear, concise manner.
Editing 5 11% Quality work will be free of any spelling, punctuation or grammatical errors. Sentences and paragraphs ( where appropriate) will be clear, concise and factually correct
Content 30 67% A quality project will have all of the required work completed and will be correct.
Total 45 100% A quality project will meet or exceed all of the above requirements.