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 Total flight expenses Net operating loss 798 1,600 5,300 4,500 1,408 1,800 500 17,390 $ (518) 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. c. 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 these expenses. Required: d. If flight 482 is dropped, Pegasus Airlines will not replace it with another flight. e. Wear and tear on the aircraft caused by this flight is negligible. f.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.
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 Total flight expenses Net operating loss 798 1,600 5,300 4,500 1,408 1,800 500 17,390 $ (518) 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. c. 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 these expenses. Required: d. If flight 482 is dropped, Pegasus Airlines will not replace it with another flight. e. Wear and tear on the aircraft caused by this flight is negligible. f.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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Meman
Transcribed Image Text:In an effort to increase profits, Pegasus Airlines 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 (190 seats x 40% occupancy
* $240 ticket price)
Variable expenses ($18.00 per person)
Contribution margin
flight crew.
Flight expenses:
Salaries,
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
Total flight expenses
Net operating loss
$ 18,240
1,368
16,872
$1,500
798
1,600
5,300
4,500
1,408
1,800
Answer is complete but not entirely correct.
(7,396)
500
17,398
$ (518)
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.
c. 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 these expenses.
Financial (disadvantage)
100.0%
7.5
92.5%
d. If flight 482 is dropped, Pegasus Airlines will not replace it with another flight.
e. Wear and tear on the aircraft caused by this flight is negligible.
f. 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?
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