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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 filight is as follows:
The following additional information is avallable about flight :
a Members of the filight crew are paid flxed annual salarles, whereas the flight assistants are paid based on the number
of round trips they complete.
b Onethird of the llability insurance is a speclal charge assessed against flight because, in the opinion of the
Insurance company, the destination of the filight is in a "highrlsk area. The remaining twothirds would be unaffected
by a decision to drop filight
c The baggage loading and flight preparation expense is an allocation of ground crews' salarles and depreclation of
ground equipment. Dropping flight would have no effect on these expenses.
d If flight is dropped, Pegasus Alrlines will not replace it with another flight.
e Wear and tear on the alrcraft caused by this filight is negligible.
t Dropping flight would not allow Pegasus Airlines to reduce the number of alrcraft in its fleet or the number of
flight crew on its payroll.
Required:
What is the financlal advantage disadvantage of discontinuing flight
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