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Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher
Edition 3ISBN: 0073527114Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher
Edition 3ISBN: 0073527114Extensions of the CVP Model—Taxes
Frightproof Commuter Airlines is considering adding a new flight to its current schedule from Metro to Hicksville. This route has the following prices and costs:
Selling price per passenger per flight | $ 80 |
Variable cost per passenger per flight | $ 20 |
Fixed cost per flight | $2,400 |
Income tax rate | 30% |
Required
a. Compute Frightproof’s break-even point in number of passengers per flight.
b. How many passengers per flight must Frightproof have to earn $1,050 per flight after taxes?
c. Each aircraft has the capacity for 70 passengers per flight. In view of this capacity limitation, can Frightproof carry enough passengers to break even? Can the company carry enough passengers to earn $1,050 per flight after taxes?
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Break-even point (in units):
Break-even point is the level of operations at which the sales revenue and total costs (variable costs and fixed costs) become equal. There is no profit or no loss at break-even point sales.
Break-even point (in units) can be calculated using the following equation:
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