Continue or Discontinue: For making decision about continuing or discontinuing a flight, we need to know the impact of that flight on the overall profits of the firm. So when overall operating profits are higher in case of continuing a flight then we will continue with the flight or vice versa. To identify: Financial advantage (disadvantage) of discontinuing flight 482.

Question

Dropping or Retaining a Flight Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company’s performance, 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: 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…

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Question

Chapter 11, Problem 21P

Requirement - 1:

To determine

Continue or Discontinue: For making decision about continuing or discontinuing a flight, we need to know the impact of that flight on the overall profits of the firm. So when overall operating profits are higher in case of continuing a flight then we will continue with the flight or vice versa.

To identify: Financial advantage (disadvantage) of discontinuing flight 482.

Requirement - 2:

To determine

To Explain: Impact of elimination of 10% its’ flight on profits.

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Dropping or Retaining a Flight Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company’s performance, 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: 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…

Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company’s performance, 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 (195 seats × 40% occupancy × $200 ticket price) $ 15,600 100.0 % Variable expenses ($20.00 per person) 1,560 10 Contribution margin 14,040 90 % Flight expenses: Salaries, flight crew $ 1,800 Flight promotion 770 Depreciation of aircraft 1,550 Fuel for aircraft 5,800 Liability insurance 5,100 Salaries, flight assistants 1,300 Baggage loading and flight preparation 1,850 Overnight costs for flight crew and assistants at destination 600 Total flight expenses 18,770 Net operating loss $ (4,730 ) The…

Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company’s performance, 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 (165 seats × 40% occupancy × $220 ticket price)$ 14,520100.0%Variable expenses ($20.00 per person)1,3209.1Contribution margin13,20090.9%Flight expenses: Salaries, flight crew$ 1,800 Flight promotion760 Depreciation of aircraft1,800 Fuel for aircraft5,400 Liability insurance5,100 Salaries, flight assistants1,200 Baggage loading and flight preparation1,750 Overnight costs for flight crew and assistants at destination700 Total flight expenses18,510 Net operating loss$ (5,310) The following additional information is available about flight 482: Members of the flight crew are paid fixed annual salaries, whereas the flight assistants are paid based on the number of round trips…