Question

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Protits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company's performance, the company is thinking about dropping several flights that appear to be unprofitable. A typical income statement for one round-trip of one such flight (flight 482) is as follows: $ 3,680 552 3,128 100.0% 15 85% 370 Ticket revenue (115 seats x 40% occupancy * $80 ticket price) Variable expenses ($12.00 per person) Contribution margin Flight expenses: Salaries, flight crew Flight promotion Depreciation of aircraft Fuel for aircraft Liability insurance Salaries, flight assistants Baggage loading and flight preparation Overnight costs for flight crew and istants at destination Total flight expenses Net operating loss 720 490 155 240 720 170 70 2,935 (193) $ The following additional information is available about flight 482: a. Members of the flight crew are paid fixed annual salaries, whereas the flight assistants are paid based on the number of round trips they complete. b. One-third of the liability insurance is a special charge assessed against flight 482 because in the opinion of the insurance company, the destination of the flight is in a "high-risk" area. The remaining two-thirds would be unaffected by a decision to drop flight 482. c. The baggage loading and flight preparation expense is an allocation of ground crews' salaries and depreciation of ground equipment. Dropping flight 482 would have no effect on the company's total baggage loading and flight preparation expenses. d. If fliaht 482 is dropped. Pegasus Airlines has no authorization at present to replace it with another fliaht.

Answer 1

Contribution margin lost of the tour is discontinued		-3128
Less: Flight costs that can be avoided
Flight promotion	720
Fuel for aircraft	155
Liability insurance	80		=240/3
Salaries, flight assistants	720
Overnight costs for flight crew and assistants at destination	70	1745
Net increase(decrease) in profits if the flight is discontinued		-1383
Financial (disadvantage) (1383)