Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company's 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 x 80% occupancy x $250 ticket price) Less: Variable expenses ($20 per person) Contribution margin Less: Flight expenses: Salaries, flight crew Flight promotion Depreciation of aircraft Fuel for aircraft Liability insurance Salaries, flight attendants Baggage loading and flight preparation Overnight costs for flight crew and attendants at destination Total flight expenses Net operating loss The following additional information is available about Flight 482: $ 25,000 2,000 23,000 3,100 1,250 2,500 12,000 7,500 900 3,000 500 30, 750 $ (7,750) 100.0% 8.0 92.0% 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 crew's 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. 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. STPAT TETEN

Profits have been decreasing for several years at Pegasus Airlines: In an effort to improve the company's 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: The following additional information is available about Flight 482 . a. Members of the fight crew are paid fixed anoual salaries, whereas the flight attendants are paid by the filght. 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 crew's salaries and depreciation of ground equipment. Dropping Flight 482 would have no effect on the company's fotal boggage loading and fight preparation expenses d. If Flight 482 is dropped, Pegasus Airlines has no authorization at present to replace it with another fight. e. Depreciation of aircraft is due entirely to obsolescence. Depreciation due to wear and tear is negligible. t. 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 airline's profits. (Do not round intermediate colculations. Negative amounts should be indicated with a minus sign.)