Answered step by step
Verified Expert Solution
Link Copied!
Question
1 Approved Answer

Hello, please help me solve this! Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company's performance, the

Hello, please help me solve this!
image text in transcribed
image text in transcribed
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 (light 482) is as follows: Ticket revenue (175 seats x 40% occupancy $200 ticket price) $ 14,000 100.0% Variable expenses (515 per person 1,050 7.5 Contribution margin 12,950 92.5% Flight expenses Salaries, Flight crew $1,800 Flight promotion 750 Depreciation of aircraft 1.550 Fuel for aircraft 5,800 Liability insurance 4,200 Salaries, Flight assistants 1,500 Base Loading and fight preparation 1,700 Overnight costs for flight crew and assistants at destination 300 Total flight expenses 17,600 Het operating loss $ (4,650) The following additional Information is available about flight 482 1. Members of the light crew are paid fixed annual salaries, whereas the light assistants are paid based on the number of round trips they complete b. One-third of the ability insurance is a special charge assessed against light 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 The baggage loading and fight preparation expense is an allocation of ground crews'salaries and depreciation of ground equipment Dropping fight 482 would have no effect on the company's total baggage loading and night preparation expenses dif fight 482 s 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 tight 482 would not allow Pegasus Airlines to reduce the number of aircraft in its fleet or the number of flight crew on its payroll Required: 1 What is the financial advantage disadvantage) of discontinuing flight 482? Financial advantage

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image
Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cost Accounting A Managerial Emphasis

Authors: Charles T. Horngren, Srikant M. Datar, George Foster

11th Edition

013099619X, 978-0130996190

More Books

Students explore these related Accounting questions