Lofty Airlines has a flight for which the regular ticket price is $200 and the variable costs per passenger are $50. Fixed costs assigned to each flight are $12,000. Each flight has a capacity of 125 seats, with an average of 95 seats sold at the regular price. To attract customers to the last 30 unsold seats, Lofty discounts the tickets by 50% for standby passengers. The break-even number of regular-priced seats per flight is
A)50
B)80
C)95
D)120

Question

Quizplus · Accepted Answer

The break-even point is where total revenue equals total costs. The fixed costs are $12,000, and the variable cost per passenger is $50. At the regular price of $200, the revenue per passenger is $200 - $50 (variable cost) = $150 contribution margin per passenger. To cover the $12,000 of fixed costs, $12,000 / $150 = 80 regular-priced seats need to be sold to break even.

Lofty Airlines Has a Flight for Which the Regular Ticket