Springfield Express Case

Case Study 2

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? 35,000 Passengers and $5,600,000

Contribution margin per passenger = $160 - $70= $90

BEP = $3,150,000/$90= 35,000

Break-even point in passengers is 35,000.

Revenue per month is = Break even point*selling price= 35,000*160= $5,600,000

b. What is the break-even point in number of passenger train cars per month? 555

Compute # of seats per train car (remember load factor?) 90*.7=63

If you know # of BE passengers for one train car and the grand total of passengers, you can compute # of train cars (rounded) = 35,000/63=555

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? 486

Contribution margin =$190 - $70=$120

BEP per passenger is = $ 3,150,000/120=26,250

The no. passengers per train car is 90*0.6 = 54

BEP in no. of passenger train cars per month is = 26,250/54= 486

d. (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? 45,000 passengers and 714 in passenger cars.

Contribution margin =$160 - $90=$70

BEP in passengers = $3,150,000/70= 45,000

BEP in no of passenger train cars = 45,000/63= 714.

e. Springfield Express has experienced an increase in variable cost per passenger to $ 85 and an