Problem Solving – Break-Even Analysis

Make a Decision: Analyze Global Air’s cost-volume-profit relationships. (from Chapter 6)

Obj. 6 Global Air is considering a new flight between Atlanta and Los Angeles. The average fare per seat for the flight is $780. The costs associated with the flight are as follows:

Fixed costs for the flight:
Crew salaries………………………………………… $ 4,860
Operating costs……………………………………. 50,000
Aircraft depreciation……………………………. 25,000
Total………………………………………………… $ 79,860

Variable costs per passenger:
Passenger check-in………………………………. $ 20
Operating costs……………………………………. 100
Total………………………………………………… $ 120

The airline estimates that the flight will sell 170 seats.

a. Determine the break-even number of passengers per flight.

b. Based on your answer in (a), should the airline add this flight to its schedule?

c. How much profit should each flight produce?

d. What additional issues might the airline consider in this decision?

Be sure to show your work and highlight your answer to each question.

Submit your well-formatted response as a PDF or Word Doc. Assignment submissions will be checked by Unicheck plagiarism detection.