Question

Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the...

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:

Ticket revenue (185 seats × 40% occupancy × $210 ticket price) $ 15,540 100.0 %
Variable expenses ($17.00 per person) 1,258 8.1
Contribution margin 14,282 91.9 %
Flight expenses:
Salaries, flight crew $ 1,600
Flight promotion 780
Depreciation of aircraft 1,550
Fuel for aircraft 5,800
Liability insurance 4,800
Salaries, flight assistants 1,400
Baggage loading and flight preparation 1,750
Overnight costs for flight crew and assistants at destination 600
Total flight expenses 18,280
Net operating loss $ (3,998 )

The following additional information is available about flight 482:

  1. 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.

  2. 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.

  3. 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.

  4. If flight 482 is dropped, Pegasus Airlines has no authorization at present to replace it with another flight.

  5. Aircraft depreciation is due entirely to obsolescence. Depreciation due to wear and tear is negligible.

  6. 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?

Homework Answers

Answer #1

I have answered through proper reasoning and analyisis .Please do read properly all the highlighted points for better understanding

Do hit a Thumps up , will be highly appreciated:)

Thanks !!

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the...
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: Ticket revenue (195 seats × 40% occupancy × $210 ticket price) $ 16,380 100.0 % Variable expenses ($17.00 per person) 1,326 8.1 Contribution margin 15,054 91.9 % Flight expenses: Salaries, flight crew $...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the...
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: Ticket revenue (175 seats × 40% occupancy × $240 ticket price) $ 16,800 100.0 % Variable expenses ($18.00 per person) 1,260 7.5 Contribution margin 15,540 92.5 % Flight expenses: Salaries, flight crew $...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the...
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: Ticket revenue (195 seats × 40% occupancy × $210 ticket price) $ 16,380 100.0 % Variable expenses ($17.00 per person) 1,326 8.1 Contribution margin 15,054 91.9 % Flight expenses: Salaries, flight crew $...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the...
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: Ticket revenue (200 seats × 40% occupancy × $210 ticket price) $ 16,800 100.0 % Variable expenses ($17.00 per person) 1,360 8.1 % Contribution margin 15,440 91.9 % Flight expenses: Salaries, flight crew...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the...
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: Ticket revenue (170 seats × 40% occupancy × $200 ticket price) $ 13,600 100.0 % Variable expenses ($18.00 per person) 1,224 9 Contribution margin 12,376 91 % Flight expenses: Salaries, flight crew $...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the...
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: Ticket revenue (175 seats × 40% occupancy × $230 ticket price) $ 16,100 100.0 % Variable expenses ($17.00 per person) 1,190 7.4 Contribution margin 14,910 92.6 % Flight expenses: Salaries, flight crew $...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the...
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: Ticket revenue (175 seats × 40% occupancy × $200 ticket price) $ 14,000 100.0 % Variable expenses ($18.00 per person) 1,260 9 Contribution margin 12,740 91 % Flight expenses: Salaries, flight crew $...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the...
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: Ticket revenue (120 seats × 40% occupancy × $60 ticket price) $ 2,880 100.0 % Variable expenses ($15.00 per person) 720 25 Contribution margin 2,160 75 % Flight expenses: Salaries, flight crew $...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the...
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: Ticket revenue (200 seats × 40% occupancy × $210 ticket price) $ 16,800 100.0 % Variable expenses ($19.00 per person) 1,520 9 Contribution margin 15,280 91 % Flight expenses: Salaries, flight crew $...
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the...
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: Ticket revenue (165 seats × 40% occupancy × $220 ticket price) $ 14,520 100.0 % Variable expenses ($19.00 per person) 1,254 8.6 Contribution margin 13,266 91.4 % Flight expenses: Salaries, flight crew $...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT