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: $12,800 1.024 11,776 100.00 8 920 Ticket revence (160 seats 404 occupancy $200 ticket price) Variable expenses ($16.00 per person) Contribution margin Flight expenses Salaries, tight crew Flight promotion Depreciation of aircraft Puel for aircraft Liability insurance Salaries, flight assistanta Baggage loading and flight preparation Overnight costs for flight crew and assistanta at destination Total flight expenses Net operating loss 5 1,700 770 1,550 5,900 4,800 1,200 1,800 700 18,420 $16,644) 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 of the 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 fight preparation expenses. d. If flight 482 is dropped, Pegasus Airlines has no authorization at present to replace it with another night e. Aircraft depreciation 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 feet or the number of flight crew on its payroll Net operating loss $(6,644) 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 Mobility insurance is a special charge assessed against flight 482 because in the opinion of the 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 e Aircraft depreciation 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. What is the financial advantage (disadvantage) of discontinuing flight 4827
