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 such flight (Flight 482) follows Ticket revenue (150 seats 80 occupancy $475 ticket price) $ 57,000 100 0 Less Variable expenses ($38 per person) 4,560 8 0 Contribution margin 52,440 92 0 Less Flight expenses Salaries, flight crew 7,100 Flight promotion 2,850 Depreciation of aircraft 5,700 Fuel for aircraft 27,300 Liability insurance 17,100 Salaries, flight attendants 2,000 Baggage loading and flight preparation 6,850 Overnight costs for flight crew and attendants at destination 1,140 Total flight expenses 70,040 Net operating loss $ (17,600 ) The following additional information is available about Flight 482 a Members of the flight crew are paid fixed annual salaries, whereas the flight attendants are paid by the flight 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 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 companys 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 Depreciation of aircraft 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 airlines profits (Do not round intermediate calculations Negative amounts should be indicated with 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 such flight (Flight 482) follows:


Ticket revenue (150 seats 80% occupancy $475 ticket price)	$	57,000		100.0	%
Less: Variable expenses ($38 per person)		4,560		8.0

Contribution margin		52,440		92.0	%

Less: Flight expenses:
Salaries, flight crew		7,100
Flight promotion		2,850
Depreciation of aircraft		5,700
Fuel for aircraft		27,300
Liability insurance		17,100
Salaries, flight attendants		2,000
Baggage loading and flight preparation		6,850
Overnight costs for flight crew and attendants at destination		1,140

Total flight expenses		70,040

Net operating loss	$	(17,600	)

The following additional information is available about Flight 482:

a.	Members of the flight crew are paid fixed annual salaries, whereas the flight attendants are paid by the flight.
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 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 companys 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.	Depreciation of aircraft 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 airlines profits. (Do not round intermediate calculations. Negative amounts should be indicated with a minus sign.)