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