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Problem $13-21($Algo$)$ Dropping or Retaining a Flight $[$LO$13-2]$

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 $($flight $482)$ is as follows:

Ticket revenue $(190$ seats $\backslash$times $40\%$ occupancy $\backslash$times $$210$ ticket price$)$ $ $15,960100\mathrm{.}0\%$

Variable expenses $($$$20\mathrm{.}00$ per person$)1,5209\mathrm{.}5$

Contribution margin $14,44090\mathrm{.}5\%$

Flight expenses:

Salaries, flight crew $ $1,800$

Flight promotion $780$

Depreciation of aircraft $1,650$

Fuel for aircraft $5,900$

Liability insurance $5,100$

Salaries, flight assistants $1,200$

Baggage loading and flight preparation $1,950$

Overnight costs for flight crew and assistants at destination $700$

Total flight expenses $19,080$

Net operating loss $ $(4,640)$

The following additional information is available about flight $482$:

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.

One$-$third of the liability insurance is a special charge assessed against flight $482$ 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 flight preparation expense is an allocation of ground crews$$ salaries and depreciation of ground equipment. Dropping flight $482$ would have no effect on the company$$s total baggage loading and flight preparation expenses.

If flight $482$ is 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 flight $482$ 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 $482?$