# Compute Contribution margin

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*timer*Asked: May 25th, 2013

**Question description**

Case Study 1 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 Formula : Revenue = Units Sold * Unit price Contribution Margin = Revenue – All Variable Cost Contribution Margin Ratio = Contribution Margin/Selling Price Break Even Points in Units = (Total Fixed Costs + Target Profit )/Contribution Margin Break Even Points in Sales = (Total Fixed Costs + Target Profit )/Contribution Margin Ratio Margin of Safety = Revenue - Break Even Points in Sales Degree of Operating Leverage = Contribution Margin/Net Income Net Income = Revenue – Total Variable Cost – Total Fixed Cost Unit Product Cost using Absorption Cost = (Total Variable Cost + Total Fixed Cost)/# of units a. Contribution margin per passenger =? Contribution margin ratio =? Break-even point in passengers = Fixed costs/Contribution Margin = Passengers =? Break-even point in dollars = Fixed Costs/Contribution Margin Ratio = $ ? b. Compute # of seats per train car (remember load factor?) If you know # of BE passengers for one train car and the grand total of passengers, you can compute # of train cars (rounded) =? c. Contribution margin =? Break-even point in passengers = fixed costs/ contribution margin Passengers =? train cars (rounded) =? d. Contribution margin =? Break-even point in passengers = fixed costs/contribution margin Passengers =? train cars ( rounded) = ? e. Before tax profit less the tax rate times the before tax profit = after-tax income = $ ? Then, proceed to compute # of passengers -=? f. # of discounted seats = ? Contribution margin for discounted fares X # discounted seats = $ each train X$ ? train cars per day X ? days per month= $? minus $ additional fixed costs = $? pretax income. g. 1. Compute Contribution margin Then, # seats X $ X # train cars = $ ? Increased fixed cost ( ?) Pretax gain (loss) on new route $ 2 and 3. Compute # of passengers and train cars using computation approaches employed in some of the above problems. 4. Springfield should consider such things as (Think of qualitative factors that are important. In other words, not the numbers but other things that have to be considered, e.g., risks)