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 (125 seats 80 occupancy $550 ticket price) $ 55,000 100 0 Less Variable expenses ($44 per person) 4,400 8 0 Contribution margin 50,600 92 0 Less Flight expenses Salaries, flight crew 6,900 Flight promotion 2,750 Depreciation of aircraft 5,500 Fuel for aircraft 26,400 Liability insurance 16,500 Salaries, flight attendants 1,925 Baggage loading and flight preparation 6,600 Overnight costs for flight crew and attendants at destination 1,100 Total flight expenses 67,675 Net operating loss $ (17,075 ) The following additional information is available about Flight 482 Members of the flight crew are paid fixed annual salaries, whereas the flight attendants are paid by the flight 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 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 If Flight 482 is dropped, Pegasus Airlines has no authorization at present to replace it with another flight Depreciation of aircraft 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 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 (125 seats 80% occupancy $550 ticket price)	$	55,000		100.0	%
Less: Variable expenses ($44 per person)		4,400		8.0
Contribution margin		50,600		92.0	%
Less: Flight expenses:
Salaries, flight crew		6,900
Flight promotion		2,750
Depreciation of aircraft		5,500
Fuel for aircraft		26,400
Liability insurance		16,500
Salaries, flight attendants		1,925
Baggage loading and flight preparation		6,600
Overnight costs for flight crew and attendants at destination		1,100
Total flight expenses		67,675
Net operating loss	$	(17,075	)

The following additional information is available about Flight 482:

Members of the flight crew are paid fixed annual salaries, whereas the flight attendants are paid by the flight.
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.
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.
If Flight 482 is dropped, Pegasus Airlines has no authorization at present to replace it with another flight.
Depreciation of aircraft 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 airlines profits. (Do not round intermediate calculations. Negative amounts should be indicated with a minus sign.)