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.

FUJIUII. Required: 1. What is the financial advantage (disadvantage) of discontinuing flight 482? Financial (disadvantage) V Financial advantage Financial (disadvantage) Problem 13-21 (Algo) Dropping or Retaining a Flight [L013-2] Prots 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 unprotable. A typical income statement for one round-trip of one such flight (flight 482) is as follows: Ticket revenue (185 seats x 46% occupancy x $220 ticket price) $16,286 166.6% Variable expenses ($16.86 per person) 1,184 7.3 Contribution margin 15,996 92.7% Flight expenses: Salaries, flight crew $ 2,906 Flight promotion 866 Depreciation of aircraft 1,706 Fuel for aircraft 5,666 Liability insurance 5,166 Salaries, flight assistants 1,566 Baggage loading and flight preparation 1,756 Overnight costs for flight crew and assistants at destination 799 Total flight expenses 19,156 Net operating loss $(4,854) 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 ofthe 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. 9. 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