Problem 6-21 (Algo) Dropping or Retaining a Flight [LO6-2] Profits have been decreasing for several years at Pegasus Alrines. In an effort to Improve the company's performance, the company is thinking about dropping several filghts that appear to be unprofitable. A typical Income statement for one round-trip of one such filight (fight 482) Is as follows: Ticket revenue (170 seats x 40% occupancy x $210 ticket price) Variable expenses ($18.00 per person) Contribution margin Flight expenses: Salaries, flight crew Flight promotion Depreciation of aircraft Fuel for aircraft Liability insurance Salaries, flight assistants Baggage loading and flight preparation Overnight costs for flight crew and assistants at destination Total flight expenses Net operating loss $14,280 1,224 13,056 100.0% 8.6 91.4 % $1,800 780 1,800 5,600 5,100 1,300 1,75e 600 18,730 $(5,674) The following additional Information is available about flight 482 a. Members of the flight crew are pald fixed annual salartes, whereas the flight assistants are paid based on the number of round trips they complete b. 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 c The baggage loading and filight preparation expense is an allocation of ground crews' salartes and depreciation of ground equipment. Dropping flight 482 would have no effect on the company's total baggage loading and flight preparation expenses d. If filight 482 Is dropped, Pegasus Alrlines has no authorization at present to replace it with another flight e. Alrcraft depreciation is due entirely to obsolescence. Depreclation due to wear and tear is negligible t. Dropping flight 482 would not allow Pegasus Alrines to reduce the number of aircraft in its fleet or the number of filight crew on its payroll. Required: 1. What Is the financial advantage (disadvantage) of discontinulng flight 482