QUESTION 2 (25 MARKS) Due to the covid-19 pandemic, profits of AirOsia have been decreasing for these two years. The company is considering dropping the unprofitable flights in the effort to improve company's performance. The income statement for one round-trip for AO390 is as follows: RM Ticket revenue (175 seats @ 40% @ RM200) 14,000 Variable expenses (RM15 per person) (1,050) Contribution margin 12,950 Flight expenses: Salaries of flight crews (1,800) Flight promotion (750) Depreciation of air craft (1,550) Fuel of aircraft (5,800) Liability insurance (4,200) Salaries, flight assistants (1,500) Baggage loading and flight preparation (1,700) Overnight costs of crew and assistants at destination (300) Net operating loss (4,650) The flight crews are paid fixed annual salaries while the flight assistants are paid based on the number of round trips completed. One-third of the liability insurance is a special charge against A0390 because the destination of the flight is a high-risk area. The remaining two- thirds would be unaffected by a decision to drop AO390. If AO390 is dropped, AirOsia has no authorization to replace it with another flight. Dropping AO390 would not allow AirOsia to reduce the number of aircraft in its fleet or number of flight crew on its payroll. The baggage loading and flight preparation expense is an allocation of ground crews' salaries and depreciation of ground equipment. Dropping A0390 would have no effect on the company's total baggage loading and flight preparation expenses. Aircraft depreciation is due entirely to obsolescence. Depreciation due wear and tear is negligible. Required: a) Prepare an analysis showing the impact dropping A0390 to its profit. (20 marks) (CLO3:PLO8:C5) b) Conclude and provide recommendation on the company's consideration to drop A0390 based on your analysis in (a) above. (5 marks) (CLO3:PLO8:C5)