Che 760 Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company's perfor

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Che 760 Profits Have Been Decreasing For Several Years At Pegasus Airlines In An Effort To Improve The Company S Perfor 1 (42.23 KiB) Viewed 54 times

Che 760 Profits Have Been Decreasing For Several Years At Pegasus Airlines In An Effort To Improve The Company S Perfor 2 (11.06 KiB) Viewed 54 times

Che 760 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 (night 482) is as follows: Ticket revenue (175 seats * 40% occupancy * $200 ticket price) $ 14,000 100.00 Variable expenses (517.00 per person) 1,190 8.5 Contribution margin 12,810 91.54 Flight expenses Salaries, flight crew $ 1,700 Flight promotion Depreciation of aircraft 1,650 Fuel for aircraft 5,000 Liability Insurance 4,500 Salaries, flight assistants 1,400 Baggage loading and flight preparation 1,950 Overnight costs for flight crew and assistants at destination Seo Total flight expenses 17,460 Net operating loss ${4,650) The following additional information is available about flight 482: a. Members of the flight crew are paid fixed annual salaries, whereas the fight assistants are paid based on the number of round trips they complete b. Ono-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 flight 482 is dropped, Pegasus Airlines has no authorization at present to replace it with another fight e. Aircraft depreciation is due entirely to obsolescence. Depreciation due to wear and tear is negligible. Dropping flight 482 would not allow Pegasus Airlines to reduce the number of alrcraft in its feet or the number of flight crew on its payroll
Required: 1. What is the financial advantage (disadvantage) of discontinuing flight 482? Financial (disadvantage)