Profits have been decreasing for several years at Pegasus Airlines. In an effort

Question

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 (100 seats 40% occupancy 100.0% $55 ticket price) Variable expenses ($11.00 per person) Contribution margin Flight expenses: $2,200 440 20 80% 1,760O 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 $350 680 390 160 180 720 190 60 2,730 assistants at destination Total flight expenses Net operating loss $ (970)

Explanation / Answer

SOLUTION

Keep 482 ($) Drop 482 ($) Difference ($) Ticket Revenue 2,200 0 2,200 Variable expenses 440 0 440 Contribution margin 1,760 0 1,760 Expenses: Salaries flight crew 350 350 0 Flight promotion 680 0 680 Depreciation of aircraft 390 390 0 Fuel for aircraft 160 0 160 Liability assurance 180 120 60 Salaries flight assistant 720 0 720 Baggage loading 190 190 0 Overnight costs for flight crew 60 0 60 Total expenses 2,730 1,050 1,680 Net Operating loss (970) (1,050) (80)

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