Case Study 1

Springfield Express is a luxury passenger carrier in Texas. All seats are first class, and the following data are
available:
u!ber of seats per passenger train car "#
Average load factor $percentage of seats filled% &#'
Average full passenger fare ( 1)#
Average variable cost per passenger ( &#
*ixed operating cost per !onth (+,1,#,###
a.
-ariable cost per .assenger/ (&#
*ull *air per .assenger/ (1)#
Contribution !argin / ( 1)#0 ( &# / ( "# per passenger
Contribution !argin ratio / ( "#1(1)# / ,).2,'
3rea40even point in passengers / *ixed costs1Contribution 5argin /( +,1,#,###1( "# per
passenger / +,,### passengers 3rea40even point in dollars / *ixed Costs1Contribution 5argin
6atio/( +,1,#,###1#.,)2, / ( ,,)##,###.
b.
Average load factor/&#' of "#
"# 7 #.&# /)+ seats per train car
+,,###1 )+ / ,,) train cars $rounded%
d. Contribution !argin / ( 1)# 0 ( "# / ( &# per passenger
3rea40even point in passengers / fixed costs1contribution !argin/
( +,1,#,###1 ( &# per passenger / 8,,### passengers
8,,###1 )+ / &18 train cars $rounded%
f. Springfield Express has experienced an increase in variable cost per passenger to ( 9, and an increase
Average load factor/&#' of "# /)+
:oad factor of 9#'/ &2 Additional load factor /&20)+/"
ew fixed costs/ +,1,#,###;19#,### /+,++#,###
Sale per day /,#<$)+=1)#% ; $12#="%> /,,9,###
Sales per !onth/,,9,###=+#/1),&8#,###
-ariable cost per car/&#=&2/,#8#
-ariable cost per !onth/2,2,###=+#/&,,)#,###
C5/Sales0variable costs 1),&8#,###0&,,)#,###/",19#, ###
.rofit/C50*ixed Expenses
",19#,###0+,++#,###/,,9,#,###
g. Springfield Express has an opportunity to obtain a new route that would be traveled 2# ti!es per !onth.
The co!pany believes it can sell seats at ( 1&, on the route, but the load factor would be only )# percent.
*ixed cost would increase by ( 2,#,### per !onth for additional personnel, additional passenger train cars,
!aintenance, and so on. -ariable cost per passenger would re!ain at ( &#.
1. o they should not obtain the additional route
2. ?ow !any passenger train cars !ust Springfield Express operate to earn pre0tax inco!e of ( 12#,###
per !onth on this route@
+. Af the load factor could be increased to &, percent, how !any passenger train cars !ust be operated to
earn pre0tax inco!e of ( 12#,### per !onth on this route@
AcBuiring this route@
ew load factor/)#' of "#/,8
.rofit/c! ratio=sales0fixed expenses
ew fixed costs/+,1,#,###;2,#,###/+,8##,###
C5/1&,0&#/1#,
C5 ratio/#.)
12#,### / #.)=sales0+,8##,###
Sales/,,9)),))&11&,/++,,28
1 car /,8 passengers
++,,28 will fill up ++,,281,8/)21 cars
ew load/&,' of "# /)9 passengers
*or 12#,### you need ++,,28 passengers
Cith )9 passengers you need
/++,,281)9/8"+ car
8. Springfield should consider such things as $Thin4 of Bualitative factors that are i!portant. An other words, not
the nu!bers but other things that have to be considered, e.g., ris4s%
1. Chat if the passengers do not purchase the tic4ets@
2. The cost of having !ore trains will increase overhead cost
+. 5ore trains and passengers will need additional e!ployees that will also increase the overhead. An addition the
feelings of the e!ployees with !ore shifts that !ay be added if !ore e!ployees are not hired
8. Effect on custo!ers present and future with growth of the co!pany