Question

Night Flights is preparing a contribution margin report segmented by route. The following information is available: Miami/LA Atlanta/ New York New York/ Chicago Average ticket price per passenger $1,250 $900 $750 Total passengers served 5,400 8,800 12,200 Total miles flown 190,000 176,000 97,600 The variable costs per unit are as follows: Fuel $25 per mile Wages $45 per mile Food/beverage service $7 per passenger Selling $70 per passenger What is the contribution margin ratio for the New York/Chicago route (to the closest tenth of a percent)?

Answer 1

The contribution margin ratio for the New York/Chicago route is approximately -138.8%.

Step-by-step explanation:

The contribution margin ratio for the New York/Chicago route can be calculated using the following steps:

1. Calculate the total revenue generated from the route by multiplying the average ticket price per passenger by the total number of passengers served.
2. Calculate the total variable costs for the route by multiplying the variable costs per unit (fuel, wages, food/beverage service, and selling) by the total miles flown.
3. Subtract the total variable costs from the total revenue to get the contribution margin for the route.
4. Finally, divide the contribution margin by the total revenue and multiply by 100 to get the contribution margin ratio.

Applying these steps to the New York/Chicago route:

• Total revenue = $750 (average ticket price per passenger) x 12,200 (total passengers served) = $9,150,000
• Total variable costs = ($25 (fuel per mile) + $45 (wages per mile) + $7 (food/beverage service per passenger) + $70 (selling per passenger)) x 97,600 (total miles flown) = $21,840,000
• Contribution margin = Total revenue - Total variable costs = $9,150,000 - $21,840,000 = -$12,690,000
• Contribution margin ratio = (Contribution margin / Total revenue) x 100 = (-$12,690,000 / $9,150,000) x 100 = -138.76%