Question

Amtrack operates train routes all over the United States. They are considering a new route from Rocky Mount, NC to Washington, D.C. All seats will be business class and they are needing to make some decisions. Their financial analyst has estimated that the cost for this route will be as follows: Number of seats in each passenger car 50 Average load factor ( 1) What is the break-even point in passengers (BEP) and revenues per month on this route? 2) What is the break-even point in number of passenger train cars per month? 3) If Amtrack raises the average passenger fare to 150, it is estimated that the average load will decrease to 60 4) (Refer to original data). Fuel cost is a significant variable cost to any railway. If crude oil rises by12 per barrel, it is estimated that variable cost per passenger will rise to 50. What would be the new break-even point in passengers and in number of passenger train cars? 5) Amtrak has experienced an increase in the variable cost per passenger to60 and an increase in total fixed cost to 3,000,000. Amtrak has decided to raise the average fare to170. If the tax rate is 40 6) (Use the original data). Amtrack is considering offering a discounted fare of 80, which they believe would increase the average load to 90 7) Amtrack has an opportunity to obtain a new route that would be traveled 20 times per month with 3 cars. Amtrack believes it can sell seats for125 on the route, but the load factor would only be 70 a) Should Amtrack purchase this route? Why or Why not? b) How many passenger train cars must Amtrack operate to earn pre-tax income of a minimum of 85,000 per month on this route? c) If the load factor could be increased to 75 d) What qualitative factors should be considered by Amtrack in making the decision about acquiring this route? 8) Amtrack currently provides box lunches for each passenger. The variable cost of each lunch is5, while the fixed costs are 100,000. Bojangles has offered to supply each lunch for7. If Amtrack outsourced the lunches the fixed would be eliminated. a) If Amtrack transported 30,000 passengers a month should they outsource the lunches? b) What if they had 50,000 passengers?

Answer 1

To find the break-even point in passengers and revenues on the new route, you need to calculate the fixed costs and variable costs per passenger. The calculations depend on various factors such as the average fare, average load factor, and variable costs. Additionally, the decision to purchase the new route and outsource lunches should be based on evaluating the potential revenue and costs.

Step-by-step explanation:

To find the break-even point in passengers and revenues per month on the new route from Rocky Mount, NC to Washington, D.C., we first need to determine the fixed costs and variable costs per passenger.

1) Break-even point in passengers and revenues:

To calculate the break-even point in passengers, divide the total fixed costs by the contribution margin per passenger. The contribution margin is the difference between the average fare per passenger and the variable cost per passenger. In this case, the fixed costs are not provided, so we cannot calculate the exact break-even point.

2) Break-even point in number of passenger train cars:

To calculate the break-even point in number of passenger train cars, divide the break-even point in passengers by the number of seats in each passenger car.

3) If Amtrack raises the average passenger fare to $150:

If the average passenger fare is raised to $150, the average load factor is estimated to decrease to 60. We can use this information to recalculate the break-even point in passengers and number of passenger train cars.

4) If crude oil rises by $12 per barrel:

If the variable cost per passenger rises to $50 due to an increase in crude oil prices, we can recalculate the break-even point in passengers and number of passenger train cars.

5) If variable cost per passenger increases to $60 and total fixed cost increases to $3,000,000:

If the variable cost per passenger increases to $60 and the total fixed cost increases to $3,000,000, and the average fare is raised to $170, we can recalculate the break-even point in passengers and number of passenger train cars.

6) If Amtrack offers a discounted fare of $80:

If Amtrack offers a discounted fare of $80, and the average load increases to 90, we can recalculate the break-even point in passengers and number of passenger train cars.

7) Should Amtrack purchase the new route?

To determine whether Amtrack should purchase the new route, we need to consider the potential revenue and costs associated with the route. Given that the average load factor would be 70 and the average fare would be $125, we can calculate the revenue and costs to evaluate the profitability of the route.

8) Should Amtrack outsource the lunches?

To determine whether Amtrack should outsource the lunches, we need to compare the costs of providing the lunches in-house versus outsourcing them to Bojangles. Given the variable cost per lunch is $5 and the fixed costs are $100,000, we can calculate the total cost of providing the lunches in-house. Then, we can compare it to the cost of outsourcing them to Bojangles at a cost of $7 per lunch.