Proflts have been decreasing for several years at Pegasus Airlines. In an effort to improve the company's performance, the company ha thinking about dropping several flights that appear to be unprofitable. A typical income statement for one round-trip of one such flight (fight 482) is as follows: $15.960 1,216 100.00 1.6 92.41 Ticket revenue (100 seats 406 bocupancy 5210 toket price) Variable expensen (16.00 per person) Contribution margin Flight expenses Salaries, light crew Flight promotion Depreciation of aircraft Fuel for airerat Liability insurance lalari, light assistanta Baggage loading and flight preparation Overnight conta tor flight crew and an istanta at destination Total flight expenses Het operating loss 1.00 770 1,700 5.200 4.000 1.200 1,050 500 17.620 $12,876) The following additional information is available about fight 482: a. Members of the flight crew are paid fixed annual salaries, whereas the light 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 fight 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 fight. e. Aircraft depreciation 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 alrcraft in its fleet or the number of flight crew on its payroll CH wybrew overnight costs for flight crew and amaiutants at dentination Total flight expenses Met operating lous 500 17,620 $(2,876) The following additional information is avallable 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 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 482?
