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

Question

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 80% occupancy $425 ticket price) $ 34,000 2720 100.0% 8.0 Ticket revenue (100 seats Less: Variable expenses (34 per person) Contribution margin Less: Flight expenses 31,280 92.0% 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 4,250 1,700 3,400 16,300 10,200 1,200 4,100 680 Total flight expenses 41,830 Net operating loss (10,550)

Explanation / Answer

Solution:

Statement showing impact of dropping flight 482 on Airline Profit - Pegasus Airline Particulars Amount Loss of contribution -$31,280.00 Saving of Flight attendant salaries $1,200.00 Saving in liability insurance cost ($10,200*1/3) $3,400.00 Saving in flight promotion cost $1,700.00 Saving in fuel cost $16,300.00 Saving in overnight costs for flight crew and attendants at destination $680.00 Net Increase (Decrease) in income due to dropping flight 482 -$8,000.00

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