Redlands Air Budgeting:
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:
Istruction Salary $30
Fuel 12
Aircraft 6
$48
Required:
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.
Redlands Air 0% Tax Rate
Sales Revenue ($75 * 533 hour) 39975
Variable Cost of Sales (48* 533 hour) 25584
Gross Profit 14391
Fixed Cost 40038
Net Income 40000
Contribution Margin 14391
Breakeven Point hours of insturction 3
10% Net Profit 8
Redlands Air 40% Tax Rate Pre-tax equivalent $36 $59
Sales Revenue ($75 * 1 hour) 75
Variable Cost of Sales (48* 1 hour) 48
Contribution Margin 27
Fixed Cost 0
Net Income 40000
Breakeven Point hours of insturction
40% Net Profit 16000