Profits have been decreasing for several years at Cheapflight Airlines. In an effort to improve the company's performance the company is thinking about dropping several fights that appear to be unprofitable. A typical income statement for one round-trip of one such flight (flight 324) is as follows: Ticket revenue (180 seats" 40% occupancy $250 ticket price) $ 18,000.00 Variable expenses ($25 per person) $ 1,800.00 Contribution margin $ 16,200.00 Flight expenses Salaries, flight crew Flight promotion Depreciation of aircraft Fuel for aircraft $ 4,000.00 $ 790.00 $ 1,700.00 $ 5,510.00 Liability insurance $ 5,100.00 Salaries, flight assistants $ 1,400.00 Baggage loading and flight preparation $ 1,700.00 Overnight costs for flight crew and assistants at destination $ 850.00 Total Flight expenses $ Net operating loss 21,050.00 (4,850.00) The following additional information is available about flight 324: a Members of the flight crew and flight assistants are paid fixed annual salaries. b. The liability insurance does not change when a flight gets dropped. c. The baggage loading and flight preparation expense is an allocation of ground crews' salaries and depreciation of group equipment. Dropping a flight would have no effect on the company's total baggage loading and flight preparation expenses. d. If the flight gets dropped the company will at the moment have no authorization to replace it with another flight. e. Aircraft depreciation is due entirely to wear and tear. This means it is only incured when the airplane is used. It is not due to obsolescence. f. Dropping a flight would not allow the company to reduce the number of aircrafts in its fleet or the number of flight crew on its payroll. 1. Indicate for each category how much of the cost is differential (i.e., how much fo the cost will be different when the flight is dropped versus when it is not). Some of your answers may be equal to $0. 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 Differential Cost 2. Calculate the financial advantage or disadvantage of dropping the flight (compare differential revenues to differential costs). 3. How much better or worse would dropping the flight be? (compare keeping and dropping the flight). You will be graded on the correctness of the outcome, not the use of a formula Indicate an advantage with a positive number and a disadvantage with a negative number