Discussion Questions

What is break-even analysis and how does it work with cost–volume–profit analysis? As a manager, what decisions would you make to achieve a lower break-even point? The CVP analysis is the level of activity at which total revenues equal total costs (both fixed and variable). A break-even analysis is the process of finding the break-even point. The cost-value-profit is the study of how specific costs respond to changes in the level of business activity. As a manager, I would want to try to make the highest quality of merchandise utilizing the materials at a much lower cost.

After 10 seats have been sold on each aircraft, the company has reached the break-even point. Should Widgets consider offering a discounted fare for seats 11 through 18? What are the advantages and disadvantages of not offering a discount on seats 11 through 18? What are the advantages and disadvantages of offering a discount on seats 11 through 18? How would you decide how much of a discount, if any, could be offered? What effect would the discount have on the financial statements of Widgets Airlines, Inc.? I believe that it can be both beneficial as well as detrimental offering discounted tickets to seats 11 through 18.

While it can be beneficial and assist in the selling of tickets, it may not be so good because people may wait to the last minute to purchase the tickets, and therefore creating an issue selling the first 10 tickets. If Widgets Airlines, Inc wanted to sell discounted tickets then, they should wait until it gets close to the flight time to discount the tickets at a reasonable rate so that they do not lose out on higher profits that they could potentially get had they sold the tickets at the base rate as seats 1 through 10. This is what other airlines such as Southwest Airlines do.

Southwest Airlines sells the remaining tickets at a discounted rate if the seats have not sold out by a certain deadline. The deadline is like a week before the actual flight. I work in the Athletics Department at a local university and our coaches are always flying somewhere, sometimes they do not get notice until the last minute and we have found some of our cheapest airline tickets that way. Discounting the seats is just a way to ensure that all of the seats on a particular flight are sold and the company receives some sort of profit.