Hw 13 question 3

Profits have been decieasing for several years at Pegasus Arrines in an etiont to imptowe the comparys performance, the comparry is thinking about dropping several nights that appear to be unprofitable A typlcal income statement for one round-tip of one such filight (taight 48 ?) is as follows: The following additional information is avallable about flight 482 : a. Membets of the fight crew are poid fisod annual sataries, whereas the fight assistants are paid based on the number of tound trips they complete. b. One thind of the lability insurance is a special charge assessed against fight 482 becouse in the opinfor of the insurance compurry the destination of the fight is in a "hightisk" sea. The remaining two-thilds would be unatfected by a deckion to diop flight 482 c. The baggage loiding and tight preparation experise is an attocation of ground ciews' salaries and depreciation of ground equipment. Dropping flight 482 would have no effect on the compiny's total bapguge losiding and fight preparation expenset. The following additionat information is available about flight 482 . a. Members of the flight crew are paid fised annual salaties, whereas the flight assistants are paid based on the number of round trips they complete. b. One-third of the liabiity insurance is a special charge assessed against filght 482 because in the opinion of the insurance compary. the destination of the fight is in a "highisisk" area. The remaining two thirds would be unaffected by a decision to drop fight 482 . c. The baggage loading and flight preparation expense is an allocation of qround ciews' salarles and depreciation of ground. equipment. Dropping flight 482 would have no effect on the company's total baggage loading and flight pteparation expenses. d. If flight 482 is dropped, Pegasus Airlines has no authorization at present to replace it with another flight. e. Aircraft depreciation is due entirely to obsolescence. Depreciation due to wear and tear is negligible. 1. Dropping flight 482 would not allow Pegasus Airltines to reduce the number of alecraft in its flect or the number of flight crew on its payrolis Required: 1. What is the financial advantage (disadvantage) of discontinuing fightit 482