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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
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 (100 seats x 40% occupancy x $75 ticket price) Variable expenses ($12.00 per person) Contribution margin Flight expenses: 3,000 10.0% 480 16 2,520 84% 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 $ 380 670 490 180 ??? 730 180 at destination 80 3,010 Total flight expenses Net operating loss s (490) The following additional information is available about flight 482: flight crew are paid fixed annual salaries, whereas the flight assistants are paid based on the number of round trips they complete
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