**15_AC 505 Case Study II Springfield Express**

**AC 505 Case Study II 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**

**a. What is the break-even point in passengers and revenues per month?**

**b. What is the break-even point in number of passenger train cars per month?**

**c. 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?**

**d. (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?**

**e. Springfield Express has experienced an increase in variable cost per passenger to $ 85 and an increase in total fixed cost to $ 3,600,000. The company has decided to raise the average fare to $ 205. If the tax rate is 30 percent, how many passengers per month are needed to generate an after-tax profit of $ 750,000?**

**f. (Use original data). Springfield Express is considering offering a discounted fare of $ 120, which the company believes would increase the load factor to 80 percent. Only the additional seats would be sold at the discounted fare. Additional monthly advertising cost would be $ 180,000. How much pre-tax income would the discounted fare provide Springfield Express if the company has 50 passenger train cars per day, 30 days per month?**

**g. Springfield Express has an opportunity to obtain a new route that would be traveled 20 times per month. The company believes it can sell seats at $ 175 on the route, but the load factor would be only 60 percent. Fixed cost would increase by $ 250,000 per month for additional personnel, additional passenger train cars, maintenance, and so on. Variable cost per passenger would remain at $ 70.**

** 1. Should the company obtain the route?**

** 2. How many passenger train cars must Springfield Express operate to earn pre-tax income of $ 120,000 per month on this route?**

** 3. If the load factor could be increased to 75 percent, how many passenger train cars must be operated to earn pre-tax income of $ 120,000 per month on this route?**

** 4. What qualitative factors should be considered by Springfield Express in making its decision about acquiring this route?**

**Category:**Business, General Business

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