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 compa thinking about dropping several flights that appear to be unprofitable. ny's perform A typical income statement for one round-trip of one such flight (light 482) is as follows: Ticket revenue (105 seats x 40% occupancy × $50 ticket price) Variable expenses ($13.00 per person) Contribution margin Flight expenses: $ 2,100 100.0% 546 26 74% 1,554 Flight promotion Depreciation of aircraft Fuel for aircraft Liability insurance Salaries, flight assistants Baggage loading and flight preparation Overnight costs for flight crew and 340 728 380 185 180 730 175 assistants at destination Total flight expenses Net operating loss 2,780 (1,226) The following additional information is available 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

Explanation / Answer

Actual Profitability Other exp. Contribution Margin                                 1,554 Salaries of Flight Crew 340 Flight Promotion                                     720 Depreciation on Aircraft 380 Fuel For Air Craft                                     185 Liability Insurance                                       60                  120 Salaries ,Flight assistants 730 Baggage loading and flight preperation                  175 Assistant at destination                                       70                                 1,035              1,745                                     519            -1,745 Financial Disadvantage would be $519

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