ezto.mhedu Profits have been decreasing for several years at Pegasus Airlines. I

Question

ezto.mhedu 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 round-trip of one such flight(flight 482) is as follows: Ticket revenue (110 seats x 40% $2,860 100% occupancy x $65 ticket price) Variable expenses ($12.00 per person) 528 18.5 Contribution margin 2,332 81.5% Flight expenses: Salaries, flight crew Flight promotion Depreciation of aircraft Fuel for aircraft Liability insurance Salaries, flight assistants Baggage loading and flight preparation Overnight costs for flight crew and assistants at destination $ 350 740 470 150 210 710 195 80 2,905 (573) Total flight expenses Net operating loss The following additional information is available about flight 482: a. Members fight assistants are paid based b. One-third of the liability insurance is a special charge assessed against c. The bagpage loading and flight preparation expense is an allocation of gr d. If fight 482 is dropped, Pegasus Airlines has no authorization at present to réplace it with another flight of the flight crew are paid fixed annual salaries, whereas the on the number of round trips they complete flight 482 because in the opinion tination of the flight is in a "high-risk area. The remaining two-thirds of the insurance company, the des would be unaffected by a decision to drop flight 482 ound crews' salaries and tion of ground equipment Dropping fight 482 would have no effect on the company's total deprecia baggage loading and flight preparation expenses ation is due entirely to obsolescence Depreciation due to wear and tear is negligible Dropping fight 482 would not allow Pegasus Airlines to reduce the number of aircraft in its fleet or the number of fight crew on its payroll Required 1. Prepare an analysis showing what impact dropang flight 482 would have on the airine's profits. (Loss amounts should be indicated by a minus sign.)

Explanation / Answer

1) Contribution margin lost if the flight is discontinued -2,332 less Flight costs that can be avoided if the flight is discontinued: Flight promotion 740 Fuel for aircraft 150 liability insurance (210*1/3) 70 Salaries,Flight assistants 710 overnight costs for flight crew and assistants 80 1750 net decrease in profits if the flight is discontinued -582

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.