Homework Help is Here – Start Your Trial Now!
Business
Accounting
In an effort to increase profits, Pegasus Airlines 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 x 40 % occupancy x $220 ticket price) Variable expenses ($16.00 per person) Contribution margin Flight expenses: Salaries, flight crew Flight promotion Depreciation of aircraft Fuel for aircraft Liability insurance Salaries, flight assistants Baggage loading and flight preparation Overnight costs for flight crew and assistants at destination Total flight expenses Net operating loss $ 14,520 1,056 100.0% 7.3 13,464 92.7% $ 1,900 760 1,700 5,300 5,100 1,400 1,900 500 18,560 $ (5,096) 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 these expenses. d. If flight 482 is dropped, Pegasus Airlines will not replace it with another flight. e. Wear and tear on the aircraft caused by this flight is negligible. f. Dropping flight 482 would not allow Pegasus Airlines to reduce the number of aircraft in its fleet or the number of flight crew on its payroll. Required: 1. What is the financial advantage (disadvantage) of discontinuing flight 482? Financial (disadvantage)

In an effort to increase profits, Pegasus Airlines 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 x 40 % occupancy x $220 ticket price) Variable expenses ($16.00 per person) Contribution margin Flight expenses: Salaries, flight crew Flight promotion Depreciation of aircraft Fuel for aircraft Liability insurance Salaries, flight assistants Baggage loading and flight preparation Overnight costs for flight crew and assistants at destination Total flight expenses Net operating loss $ 14,520 1,056 100.0% 7.3 13,464 92.7% $ 1,900 760 1,700 5,300 5,100 1,400 1,900 500 18,560 $ (5,096) 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 these expenses. d. If flight 482 is dropped, Pegasus Airlines will not replace it with another flight. e. Wear and tear on the aircraft caused by this flight is negligible. f. Dropping flight 482 would not allow Pegasus Airlines to reduce the number of aircraft in its fleet or the number of flight crew on its payroll. Required: 1. What is the financial advantage (disadvantage) of discontinuing flight 482? Financial (disadvantage)

Managerial Accounting
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
icon
Related questions
Question

Rahul 

In an effort to increase profits, Pegasus Airlines 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 x 40 % occupancy x $220 ticket price) Variable expenses ($16.00 per person) Contribution margin Flight expenses: Salaries, flight crew Flight promotion Depreciation of aircraft Fuel for aircraft Liability insurance Salaries, flight assistants Baggage loading and flight preparation Overnight costs for flight crew and assistants at destination Total flight expenses Net operating loss $ 14,520 1,056 100.0% 7.3 13,464 92.7% $ 1,900 760 1,700 5,300 5,100 1,400 1,900 500 18,560 $ (5,096) 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 these expenses. d. If flight 482 is dropped, Pegasus Airlines will not replace it with another flight. e. Wear and tear on the aircraft caused by this flight is negligible. f. Dropping flight 482 would not allow Pegasus Airlines to reduce the number of aircraft in its fleet or the number of flight crew on its payroll. Required: 1. What is the financial advantage (disadvantage) of discontinuing flight 482? Financial (disadvantage)
Transcribed Image Text:In an effort to increase profits, Pegasus Airlines 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 x 40 % occupancy x $220 ticket price) Variable expenses ($16.00 per person) Contribution margin Flight expenses: Salaries, flight crew Flight promotion Depreciation of aircraft Fuel for aircraft Liability insurance Salaries, flight assistants Baggage loading and flight preparation Overnight costs for flight crew and assistants at destination Total flight expenses Net operating loss $ 14,520 1,056 100.0% 7.3 13,464 92.7% $ 1,900 760 1,700 5,300 5,100 1,400 1,900 500 18,560 $ (5,096) 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 these expenses. d. If flight 482 is dropped, Pegasus Airlines will not replace it with another flight. e. Wear and tear on the aircraft caused by this flight is negligible. f. Dropping flight 482 would not allow Pegasus Airlines to reduce the number of aircraft in its fleet or the number of flight crew on its payroll. Required: 1. What is the financial advantage (disadvantage) of discontinuing flight 482? Financial (disadvantage)
Expert Solution
steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Managerial Accounting
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Essentials of Business Analytics (MindTap Course …
Essentials of Business Analytics (MindTap Course …
Statistics
ISBN:
9781305627734
Author:
Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS