Profits have been decreasing for several years at Pegasus Airlines In an effort to improve the companys performance, consideration is being given to 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 (175 seats 40 occupancy $200 ticket price) $ 14,000 100 0 Variable expenses ($15 per person) 1,050 7 5 Contribution margin 12,950 92 5 Flight expenses Salaries, flight crew $ 1,800 Flight promotion 750 Depreciation of aircraft 1,550 Fuel for aircraft 5,800 Liability insurance 4,200 Salaries, flight assistants 1,500 Baggage loading and flight preparation 1,700 Overnight costs for flight crew and assistants at destination 300 Total flight expenses 17,600 Net operating loss $ (4,650) The following additional information is available about flight 482 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 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 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 d If flight 482 is dropped, Pegasus Airlines has no authorization at present to replace it with another flight e Aircraft depreciation is due entirely to obsolescence Depreciation due to wear and tear is negligible f 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 Prepare an analysis showing what impact dropping flight 482 would have on the airline's profits (Any losses reductions should be indicated by a minus sign )

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Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the companys performance, consideration is being given to dropping several

Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the companys performance, consideration is being given to 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 (175 seats 40% occupancy $200 ticket price)	$	14,000	100.0	%
Variable expenses ($15 per person)		1,050	7.5

Contribution margin		12,950	92.5	%

Flight expenses:
Salaries, flight crew	$	1,800
Flight promotion		750
Depreciation of aircraft		1,550
Fuel for aircraft		5,800
Liability insurance		4,200
Salaries, flight assistants		1,500
Baggage loading and flight preparation		1,700
Overnight costs for flight crew and assistants at destination		300

Total flight expenses		17,600

Net operating loss	$	(4,650)

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.	Prepare an analysis showing what impact dropping flight 482 would have on the airline's profits. (Any losses/ reductions should be indicated by a minus sign.)