ACCT-505 Week 3 Case Study II

 

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

 

What is the break-even point in passengers and revenues per month? What is the break-even point in number of passenger train cars per month? 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? (Refer to original data.) Fuel cost is a significant variable cost to any railway. If crude oil increases by $ 20 per barrel, it is estimated that variable cost per passenger will rise to $ 90. What will be the new break-even point in passengers and in number of passenger train cars? Springfield Express has experienced an increase in variable cost per passenger to $ 85 and an increase in total fixed cost to $ 3,600,000. The company has decided to raise the average fare to $ 205. If the tax rate is 30 percent, how many passengers per month are needed to generate an after-tax profit of $ 750,000? (Use original data). Springfield Express is considering offering a discounted fare of $ 120, which the company believes would increase the load factor to 80 percent. 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? 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. Should the company obtain the route? How many passenger train cars must Springfield Express operate to earn pre-tax income of $ 120,000 per month on this route? 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? 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.