Freefight Airlines is presently operating at 70 percent of capacity. Management of the airline is considering dropping Freefight's routes between Europe and the United States. If these routes are dropped, the revenue associated with the routes would be lost and the related variable costs saved. In addition, the company's total fixed costs would be reduced by 20 percent. Segmented income statements for a typical month appear as follows (all amounts in millions of dollars): Within U.S. Within Europe Between U.S. and Europe Routes $3.33 $2.77 $ 2.82 Varible costs 1.20 0.97 1.77 Fixed costs allocated to routes 1.66 1.29 1.39 Operating profit (loss) $0.47 $0.51 $(0.34) Required: a. Prepare a differential cost schedule. (Select option "increase" or "decrease", keeping Status Quo as the base. Select "none" if there is no effect. Enter your answers in millions rounded to 2 decimal places.) Status Quo Alternative: Drop U.S. to Europe Difference (increase, decrease, none) Revenue ? ? ? ? Less: Variable costs ? ? ? ? Contribution margin ? ? ? ? Less: Fixed costs ? ? ? ? Operating profit (loss) ? ? ? ? b. Should Freeflight drop the routes between Europe and the United States? ___ Yes ___ No

Freefight Airlines is presently operating at 70 percent of capacity. Management of the airline is considering dropping Freefight's routes between Europe and the United States. If these routes are dropped, the revenue associated with the routes would be lost and the related variable costs saved. In addition, the company's total fixed costs would be reduced by 20 percent. Segmented income statements for a typical month appear as follows (all amounts in millions of dollars): Within U.S. Within Europe Between U.S. and Europe Routes $3.33 $2.77 $ 2.82 Varible costs 1.20 0.97 1.77 Fixed costs allocated to routes 1.66 1.29 1.39 Operating profit (loss) $0.47 $0.51 $(0.34) Required: a. Prepare a differential cost schedule. (Select option "increase" or "decrease", keeping Status Quo as the base. Select "none" if there is no effect. Enter your answers in millions rounded to 2 decimal places.) Status Quo Alternative: Drop U.S. to Europe Difference (increase, decrease, none) Revenue ? ? ? ? Less: Variable costs ? ? ? ? Contribution margin ? ? ? ? Less: Fixed costs ? ? ? ? Operating profit (loss) ? ? ? ? b. Should Freeflight drop the routes between Europe and the United States? _ Yes _ No

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter6: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 1MAD: Analyze Global Airs cost-volume-profit relationships Global Air is considering a new flight between...

See similar textbooks

Related questions

Question

Segmented income statements for a typical month appear as follows (all amounts in millions of dollars):

Within U.S. Within Europe Between U.S. and Europe

Routes $3.33 $2.77 $ 2.82

Varible costs 1.20 0.97 1.77

Fixed costs allocated to routes 1.66 1.29 1.39

Operating profit (loss) $0.47 $0.51 $(0.34)

Required:

a. Prepare a differential cost schedule. (Select option "increase" or "decrease", keeping Status Quo as the base. Select "none" if there is no effect. Enter your answers in millions rounded to 2 decimal places.)

Status Quo Alternative: Drop U.S. to Europe Difference (increase, decrease, none)

Revenue ? ? ? ?

Less: Variable costs ? ? ? ?

Contribution margin ? ? ? ?

Less: Fixed costs ? ? ? ?

Operating profit (loss) ? ? ? ?

b. Should Freeflight drop the routes between Europe and the United States?

___ Yes

___ No

Expert Solution