Comfi Airways, Inc., a small two-plane passenger airline, has asked for your assistance in some...
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Accounting
Comfi Airways, Inc., a small two-plane passenger airline, has asked for your assistance in some basic analysis of its operations. Both planes seat 10 passengers each, and they fly commuters from Comfis base airport to the major city in the state, Metropolis. Each month, 40 round-trip flights are made. Shown below is a recent months activity in the form of a cost-volume-profit income statement.
Fare revenues (400 passenger flights)
$64,000
Variable costs
Fuel
$18,600
Snacks and drinks
800
Landing fees
1,800
Supplies and forms
1,200
22,400
Contribution margin
41,600
Fixed costs
Depreciation
2,950
Salaries
15,500
Advertising
600
Airport hanger fees
1,750
20,800
Net income
$20,800
a.If ticket prices were decreased by 10%, passenger flights would increase by 25%. However, total variable costs would increase by the same percentage as passenger flights.
(1) How much would net income be impacted by this change?
Net income =
(2) Should the ticket price decrease be adopted?
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