E6-4 Comfi Airways, Inc., a small two-plane passenger airline, has asked

Price: $2.99


E6-4 Comfi Airways, Inc., a small two-plane passenger airline, has asked for your assistance
in some basic analysis of its operations. Both planes seat 10 passengers each, and
they fl y commuters from Comfi ’s base airport to the major city in the state, Metropolis.
Each month, 40 round-trip fl ights are made. Shown below is a recent month’s activity in
the form of a cost-volume-profi t income statement.

Fare revenues (400 fares) $48,000
Variable costs
Fuel $14,000
Snacks and drinks 800
Landing fees 2,000
Supplies and forms 1,200 18,000
Contribution margin 30,000
Fixed costs
Depreciation 3,000
Salaries 15,000
Advertising 500
Airport hangar fees 1,750 20,250
Net income $ 9,750

Instructions

(a) Calculate the break-even point in (1) dollars and (2) number of fares.

(b) Without calculations, determine the contribution margin at the break-even point.

(c) If fares were decreased by 10%, an additional 100 fares could be generated. However,
total variable costs would increase by 20%. Should the fare decrease be adopted?