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Case Study 1:Springfield Express




Question;Case Study 1:Springfield Express is due this week. Please see the instructions and guidance document located in Doc Sharing under the Case Study Files. There are two(2)enclosures for this assignment. One(1) is the instructions and the other guidance document. Please show and explain all workSpringfield Express is a luxury passenger carrier in Texas. All seats are first class, andthe following data are available:Number of seats per passenger train carAverage load factor (percentage of seats filled)Average full passenger fareAverage variable cost per passengerFixed operating cost per month9070%$ 160$ 70$3,150,000a. 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 theaverage load factor will decrease to 60 percent. What will be the monthly break-evenpoint in number of passenger cars?d. (Refer to original data.) Fuel cost is a significant variable cost to any railway. If crude oilincreases 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 passengertrain cars?e. Springfield Express has experienced an increase in variable cost per passenger to $ 85and an increase in total fixed cost to $ 3,600,000. The company has decided to raise theaverage fare to $ 205. If the tax rate is 30 percent, how many passengers per month areneeded 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 theadditional seats would be sold at the discounted fare. Additional monthly advertising costwould be $ 180,000. How much pre-tax income would the discounted fare provideSpringfield Express if the company has 50 passenger train cars per day, 30 days permonth?g. Springfield Express has an opportunity to obtain a new route that would be traveled 20times per month. The company believes it can sell seats at $ 175 on the route, but theload factor would be only 60 percent. Fixed cost would increase by $ 250,000 per monthfor 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-taxincome of $ 120,000 per month on this route?3. If the load factor could be increased to 75 percent, how many passenger train carsmust 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 itsdecision about acquiring this route?


Paper#44405 | Written in 18-Jul-2015

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