Break-Even Sales and Sales Mix for a Service Company

Zero Turbulence Airline provides air transportation services between Los Angeles, California, and Kona, Hawaii. A single Los Angeles to Kona round-trip flight has the following operating statistics:

Fuel       $7,000

Flight crew salaries          3,200

Airplane depreciation    3,480

Variable cost per passenger—business class       140

Variable cost per passenger—economy class      120

Round-trip ticket price—business class 800

Round-trip ticket price—economy class                 300

It is assumed that the fuel, crew salaries, and airplane depreciation are fixed, regardless of the number of seats sold for the round-trip flight.

a. Compute the break-even number of seats sold on a single round-trip flight for the overall product, E. Assume that the overall product mix is 10% business class and 90% economy class tickets.

Total number of seats at break-even      seats

b. How many business class and economy class seats would be sold at the break-even point?

Business class seats at break-even           seats

Economy class seats at break-even          seats