Chapter 4, Problem 49E

Dropping Product Lines

Freeflight Airlines is presently operating at 70 percent of capacity. Management of the airline is considering dropping Freeflight’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):

Required

Prepare a differential cost schedule like the one in Exhibit 4.8 to indicate whether Freeflight should drop the routes between Europe and the United States.