Profits have been decreasing for several years at Pegasus Airlines. In an effort to imptove the company's performance, conisideration Is being given to dropping several flights that appear to be unprofitable. A typical income statement for one such flight (Fight 482 ) follows: The following additional information is available about Fight 482 : a. Members of the flight crew are paid fixad annual salaries, whereas the light attendants are paid ty thie fightt. b. One-third of the llability insurance is a special charge assessed against Fight 482 because, in the ophion of the ingashce company. the destination is in a hightisk area. The remaining two-thards woutd be unattected by a decision to drop fieght 4.2 c. The baggage boading and tilght proparation expense is an allocation of ground crew's salarles and depreciation of ground equipment. Dropping Flight 482 would have no effect on the companyst total bappage fonding and tlight preparation expentses. d) if Flight 482 is dropped. Pegasus Airlines has no authosization at present to leploce it with onother fight e. Depreciation of airciatt is due entiely to obsolescence. Depreclation due to weot and terof is neglgible t. Dropping Flight 482 wiodid not allow Pegasits Alitines to reduce the mumber of alicraft in ks tleet of the number af kight ciew on as poyroil. Required: colculations. Negotive omounts should be indlected with n minus sient. a. Members of the flight crew are paid fixed annual salaries, whereas the fight attendants are paid by the fllighit, b. One-third of the llablity insurance is a special charge assessed against Flight 482 because, in the opinion of the insurance company. the destination is in a high tisk area. The remaining two thirds would be unatfected by a decision to drop Flight 482 c. The baggage loading and flight preparation expense is an allocation of ground crew's solaries and depreciation of ground equipment. Diopping Flight 482 would have no effect on the company's total bapgage loading andi light preparation expenses. d. If Fight 482 is dropped, Pegasus Aitines has no authonization at present to replace it with mother flight. e. Depreciation of aircaft is due entirely to obsolescence. Depreclation due to wear and tear is negligibie. f. Dropping Flight 482 would not allow Pegasus Airlines to reduce the number of aliccraft in its fleet or the number of tilght crew on its payroll Required: 1. Prepare an analysis showing what impact dropping Filght 482 woukd have on the alitine's profits, (Do not round intermediate colculntions, Negative amounts should be indicated with a minus slgn.)
