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: $ 18,720 1,560 17,160 100.0 3.3 91.7% Ticket revenue (195 seats 40% occupancy - $240 ticket price) Variable expenses (520.00 per person) Contribution margin Flight expenses Salaries, Flight crew Flight promotion Depreciation of aircraft Fuel for aircraft Liability insurance Sarie, fiint assistants Baccate loading and flight preparation Overnight costs for flight crew and assistants et destination Total flight expenses Niet operating loss $ 1,900 760 1,500 5,000 4,000 1,400 1.750 600 171710 5550) The following additional information is available about flight 482 a. Members of the flight crew are paid foxed annual sales, whereas the flight assistants are paid based on the number of round trios they complete b. One-third of the ability insurance is a special charge assessed against flight 482 because in the opinion of the insurance company the destination of the night is in a high-riskares. The remaining two-thirds would be unaffected by a decision to drop flight 482 c. The baggage loading and fight preparation expenses on allocation of ground crews salaries and depreciation of ground equipment Dropping flight 482 would have no effect on the company's total baggage loading.god flight preparation expenses d. If flight 482 is dropped. Pogosus Airlines has no autorization at present to replace it with another flight e Aircraft depreciation due entirely to obsolescence Depreciation due to wear and tear is negligible Dropping Night 482 would not allow Pegasus Airlines to reduce the number of aircraft in its fleet or the number of light crew on its The following additional Information is available about fight 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 flight preparation expenses dl 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 1. Dropping flight 482 would not allow Pegasus Airlines to reduce the number of aircraft in ts fleet or the number of flight crew on its payroll Required: 1 What is the financial advantage (disadvantages of discontinuing flight 482
