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
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
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
