Profits have been decreasing for several years at Pegasus Airlines. In an effort
ID: 2456185 • Letter: P
Question
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company’s performance, consideration is being given to dropping several flights that appear to be unprofitable.
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.
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.
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 the company's total baggage loading and flight preparation expenses.
If flight 482 is dropped, Pegasus Airlines has no authorization at present to replace it with another flight.
Aircraft depreciation is due entirely to obsolescence. Depreciation due to wear and tear is negligible.
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.
Prepare an analysis showing what impact dropping flight 482 would have on the airline's profits. (Loss amounts should be indicated by a minus sign.)
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company’s performance, consideration is being given to dropping several flights that appear to be unprofitable.
Explanation / Answer
expense that will continue to incur:
There will b no income if flight 482 is dropped,so loss = 1130
Increase in loss = 1130 - 384 = 746
Profit will decrease by $746
salary of crew members 310 Depreciation 520 Liability insurance [180*2/3] 120 Baggage ,loading 180 Total expense 1130Related Questions
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