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In an effort to increase profits, Pegasus Airlines is thinking about dropping several flights that appear to be unprofitable. A typical income statement for one
In an effort to increase profits, Pegasus Airlines is thinking about dropping several flights that appear
to be unprofitable.
A typical income statement for one roundtrip of one such flight flight is as follows:
The following additional information is available about flight :
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 Onethird of the liability insurance is a special charge assessed against flight because, in the
opinion of the insurance company, the destination of the flight is in a "highrisk" area. The
remaining twothirds would be unaffected by a decision to drop flight
c The baggage loading and flight preparation expense is an allocation of ground crews' salaries and
depreciation of ground equipment. Dropping flight would have no effect on these expenses.
d If flight is dropped, Pegasus Airlines will not replace it with another flight.
e Wear and tear on the aircraft caused by this flight is negligible.
f Dropping flight would not allow Pegasus Airlines to reduce the number of aircraft in its fleet or
the number of flight crew on its payroll.
Required:
What is the financial advantage disadvantage of discontinuing flight
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