Question

Profits 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: $18,500 1,258 17, 242 100.0% 6.8 93.2% Ticket revenue (185 seats 40% occupancy X $250 ticket price) Variable expenses ($17.00 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 assistants at destination Total flight expenses Net operating loss $ 1,700 790 1,750 5,300 4,800 1,400 1,750 600 18,090 $ (848)

Answer 1

Answer

Financial advantage

$ (7,552)

Calculations:

Lost Contribution margin		$ 17,242
Avoidable fixed expenses
Flight assistant salaries	$ 1,400
Liability insurance: ( 1/3)	$ 1,600
Flight promition	$    790
Fuel	$ 5,300
Overnight costs	$    600	$   9,690
Incremental income if flight 482 is dropped		$ (7,552)

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