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Accounting and Finance For Business Essay

While these tutorial tasks MUST be submitted individually, you are encourage to work through these tasks together with the other members of your team, both during this week’s tutorial and in your own time. This is a good opportunity to ensure that all members of your group can calculate a breakeven point before and after-tax, a margin of safety and make a managerial decision regarding the addition of a new product (in this tutorial exercise, the addition of a new route).

All answers must be inserted into the on-line form provided in LMS titled, “Topic 9 Tutorial Exercises”.

Kangaroo Airlines

Kangaroo Airlines in small local carrier located in the Kimberly region of Western Australia. All seats are economy class and the following data is available:

1.What is the break-even point in number of passengers per month?
30000

2.What is the break-even point in sales revenue dollars per month?
2100000

3.What is the break-even point in number of flights per month (round up)?
334

4.If Kangaroo Airline currently has on average 40,000 passengers per month what is Kangaroo Airline’s margin of safety in number of passengers?

5.If Kangaroo Airlines raises its average full passenger fare to $85 and the average variable costs per passenger will remain at $30, it is estimated that the load factor will decrease to 60 percent. What will be the break-even point in number of flights (round up)?

6.The cost of aviation fuel is a significant variable cost to any airline. If fuel charges increase by $8 per barrel, it is estimated that variable cost per passenger will increase to $40 however that average full passenger fare will remain at the original $70 per passenger as will the original load factor of 75 percent. What will be the new break-even point in number of passengers?

7.The cost of aviation fuel is a significant variable cost to any airline. If fuel charges increase by $8 per barrel, it is estimated that variable cost per passenger will increase to $40 however the average full passenger fare will remain at the original $70 per passenger as will the original load factor of 75%. What will be the new break-even point in number of passengers? What will be the new break-even point in number of flights (round up)?

8.Kangaroo Airlines has experienced an increase in average variable cost per passenger to $35 and an increase in fixed costs to $1,500,000. Kangaroo Airlines has decided to increase the average full passenger fare to $80. How many of passengers are needed to generate an after-tax profit of $400,000, if the company tax rate is 30 percent (round up)?


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