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Freeight Airlines is presently operating at 70 percent of capacity. Management of the airline is considering dropping Freeight's routes between Europe and the United States. Ifthese routes are dropped} the revenue associated with the routes would be lost and the related variable costs saved. In addition, the company's total xed costs would be reduced by 20 percent. Segmented income statements for a typical month app ear as follows (all amounts in millions of dollars). Routes Sales ................................. Variable costs ....................... Fixed oosts allocated to routes .......... Operating prot (loss) ................ $3.4 1.4 1 \"=3 Between U.S. Within US. Within Europe and Europe 52.6 s 2.8 1.0 1.5 E 1.4 $_.3 1m Chapter 4 Fundamentals of Cost Analysis for Decision Making Status Quo: Alternative: Keep Desert Drop Desert Trips Trips Sales revenue ................... $ 910,000 $ 770.000 Cost of sales (all va riable] ......... 377.000 315.000 Contribution margin ............ $ 533.000 $ 455.000 Less xed costs: Rent ......................... 150.000 150.000 Salaries ...................... 209.000 164.000 Marketing and administrative. . . . 48.000 40.000 Operating prot (loss) ............ $126,000 $ 101,000 Difference $ 140,000 decrease 62,000 decrease is 78.000 decrease _0_ 45.000 decrease 8.000 decrease $ 25,000 decrease Exhibit 4.8 Differential Analysis Desert Adventures