Redlands Air, Inc charges $75 per hour for flight instruction. The company has $25,000 of annual fixed admininistrative costs, and pays $15,000 rental expense to Inland Empire Airport each year. Redlands incurs a $20,000 annual insurance premium to insure its aircraft and facilities.
In addition, the company gathers the following variable cost data per hour of flight instruction: Instruction Salary $30- Fuel $12- Aircraft $ 6
A. Assume Redlands Air, Inc. does not have to pay income taxes due to previous years operating losses.
1. Compute Redlands Airs's breakeven point in hours of flight instruction (round up to the next whole hour.)
2. Determine the amount of revenue it needs to breakeven.
3. Calculate the number of flight hours and amount of revenue the firm needs to order to generate income of $40,000.
4. Calculate the number of flight hours and the amount of revenue the firm need in order to generate a 10% net profit margin (net profit margin = net income/sales revenues).
B. Answers questions 1-4 in part A if Redlands Air has a 40% income tax rate.
See attached for full problem description.
The solution provides guidance on calculating breakeven point (both with and without taxes) in the context of Redlands Air's budget.