PROBLEM 4-5. Break-Even, “What If”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 2007, the company reported an annual income before taxes of $4,100 although that included a deduction of $60,000 reflecting Michael’s “salary.”$436,800Less costs:$60,000142,628124,80020,0001,50036,00018,000432,700$4,100Revenue of $436,800 reflects six round trips per week for 52 weeks with an average of four passengers paying $350 each per round trip (6 × 52 × 4 × $350 = $436,800). The flight to the resort is 400 miles one way. With 312 round trips (6 per week × 52 weeks), that amounts to 249,600 miles. The plane averages 7 miles per gallon.Requireda. How many round trips is Michael currently flying, and how many round trips are needed in total to break even?b. How many round trips are needed so that Michael can draw a salary of $100,000 and still not show a loss?c. What is the average before-tax profit of a round trip flight in 2007?d. What is the incremental profit associated with adding a round trip flight?
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