What is the answer to Required 1? Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company'sperformance, the company 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 (180 seats X 40% occupancy × $220 ticket price) $15,840 100.0%Variable expenses ($19.00 per person)1,36814,472 91.4%8.6Contribution marginFlight expenses:Salaries, flight crewFlight promotionDepreciation of aircraftFuel for aircraft$ 1,7007801,7005,3005,1001,5001,950700Liability insuranceSalaries, flight assistantsBaggage loading and flight preparationOvernight costs for flight crew and assistants at destinationTotal flight expenses18,730Net operating loss$ (4,258)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 basedon the number of round trips they complete.b. One-third of the liability insurance is a special charge assessed against flight 482 because in theopinion of the insurance company, the destination of the flight is in a "high-risk" area. The remainingtwo-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 anddepreciation of ground equipment. Dropping flight 482 would have no effect on the company's totalbaggage loading and flight preparation expenses.d. If flight 482 is dropped, Pegasus Airlines has no authorization at present to replace it with anotherflight.e. Aircraft depreciation is due entirely to obsolescence. Depreciation due to wear and tear is negligible.f. Dropping flight 482 would not allow Pegasus Airlines to reduce the number of aircraft in its fleet orthe number of flight crew on its payroll.Required:1. What is the financial advantage (disadvantage) of discontinuing flight 482?Financial (disadvantage)

There is some fixed cost which are incurred irrespective of whether the operations is continued or discontinued. However if the cost is variable and if the operations is discontinued then the Variable cost will not incur and vice Versa.1 Contribution Margin Lost for Discontinuing flight 482 - 14,472 Flight promotion 780 Fuel for Aircraft 5,300 Liability Insurance (5,100 x 1/3) 1,700 Salaries, Flight Assistants 1,500 Overnight Costs for Flight Crew and Assistants 700 Total Cost which can be avoided if the flight is discontinued 9,980 Financial Disadvantage - 4,492