Contribution margin lost if the tour is discontinued:________________ Less flight costs that can be avoided if the flight is discontinued: Flight promotion:___________ Fuel for aircraft: ___________ Liability insurance:__________ Salaries, flight assistants:____________ Overnight costs for flight crew and assistants:____________ Net increase (decrease) in profits if the flight is discontinued:_______________

Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company's performance, consideration is being given to 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: Ticket revenue (175 seats 40% $14,000 100.0% 1,050 7.5 occupancy x $200 ticket price) Variable expenses ($15 per person) Contribution margin Flight expenses 12,950 92.5% 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 $ 1,800 750 1,550 5,800 4,200 1,500 1,700 assistants at destination Total flight expenses Net operating loss 300 17,600 $(4,650) 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 the destination of the flight is in a "high-risk" area. The remaining two-thirds of the insurance company 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 If flight 482 is dropped, Pegasus Airlines has no authorization at present to replace it with another flight. 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 aircraft in its fleet or the number of flight crew on its payroll d. e. f