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    Breakeven point - Michael Bordellet

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    Michael Bordellet is the owner/pilot of Bordellet Air Service. The company flies a daily round trip from Seattle's Lake Union to a resort in Canada. In 2010 the company recorded an annual income before taxes of $8,083 although that included a deduction of $70,000 reflecting Michael's "salary".

    Price $360
    Passengers 1,248
    Revenue $449,280 360*1,248

    Pilot (owner's salary) $70,000
    Fuel (35,657 gallons x $4.15) $147,977
    Maintenance (Variable) $127,920
    Depreciation of plane $25,000
    Depreciation of Office Equipment $2,800
    Rent Expense $40,000
    Insurance $20,000
    Miscellaneous (fixed) $7,500
    Total Cost $441,197

    Income before Taxes $8,083

    Revenue of $449,280 reflects six round trips per week for 52 weeks with an average of four passengers paying $360 each per round trip (6 x 52 x 4 x $360 = $449,280). The flight to the resort is 400 miles one way. With 312 round trips (6 per week x 52 weeks), that amounts to 249,600 miles. The plane averages 7 miles per gallon.

    a. How many round trips is Michael currently flying, and how many round trips are needed to break even?

    b. How many round trips are needed so that Michael can draw a salary of $110,000 and still not show a loss?

    c. What is the average before-tax profit of a round trip flight in 2010?

    d. What is the incremental profit associated with adding a round-trip flight?

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    Solution Summary

    The solution computes breakeven point for Michael Bordellet who is owner/pilot of Bordellet Air Service.