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Freeflight Airlines is presently operating at 70 percent of capacity. Management of the airline is considering dropping Freeflight's routes between Europe and the United States.
Freeflight Airlines is presently operating at 70 percent of capacity. Management of the airline is considering dropping Freeflight's routes between Europe and the United States. If these routes are dropped, the revenue associated with the routes would be lost and the related variable costs saved. In addition, the company's total fixed costs would be reduced by 20 percent. Segmented income statements tor a typical month appear as tollows (all amounts in millions of dollars) Within Uctweon U.S Within U S. Europe and Europe Routes Sales Variable costs Fixed costs allorated to routes S 2.80 0.90 1 30 0.23 $ 0.52 $2.85 1.73 1 40 $3.1 1.22 1 6fi Operating profit (loss) 5(0.33) Required: a. Prepare a differential cost schedule. (Enter your answers in millions rounded to 2 decimal places.) Alternative: Drop U.S. to Europe Status Quo lower under the RevenuC Less: Variable costs Contribution margin Less. Fixed costs Operating profit (loss) b. Should Freeflight drop the routes between Europe and the United States? O Yes O No
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