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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? (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? 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. Should the company obtain the route? How many passenger
train cars must Springfield Express operate to earn pre-tax income of $
120,000 per month on this route? 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? What qualitative
factors should be considered by Springfield Express in making its
decision about acquiring this route?
Grading Rubric for Case Study II:
Category
Points
%
Description
Documentation & Formatting
5
11%
Case Study will be completed in Word or Excel and contain necessary
formulas to receive maximum credit
Organization & Cohesiveness
5