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    noelle66's Avatar
    noelle66 Posts: 1, Reputation: 1
    New Member
     
    #1

    Nov 28, 2010, 03:40 PM
    Profits have been decreasing for several years at Pegasus Airlines. In an effort to i
    A typical income statement for one round-trip of one such flight (flight 482) is as follows:


    Ticket revenue (175 seats × 40%
    occupancy × $200 ticket price) $14,000 100.0 %
    Variable expenses ($15 per person) 1,050 7.5
    Contribution margin 12,950
    92.5 %

    Flight expenses:
    Salaries, flight crew 1,800
    Flight promotion 750
    Depreciation of aircraft 1,550
    Fuel for aircraft 5,800
    Liability insurance 4,200
    Salaries, flight assistants 1,500
    Baggage loading and flight preparation 1,700
    Overnight costs for flight crew and
    assistants at destination 300

    Total flight expenses 17,600
    Net operating loss $(4,650)


    --------------------------------------------------------------------------------


    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 the company's total baggage loading and flight preparation expenses.

    d. If flight 482 is dropped, Pegasus Airlines has no authorization at present to replace it with another flight.
    e. Aircraft depreciation is due entirely to obsolescence. Depreciation due to wear and tear 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:
    By how much will the profits increase or decrease if flight 482 is discontinued? (Input the amount as positive value. Omit the "$" sign in your response.)
    Profits would increase or decrease by $??
    rehmanvohra's Avatar
    rehmanvohra Posts: 739, Reputation: 27
    Senior Member
     
    #2

    Nov 28, 2010, 11:30 PM
    The same question was posted two months ago under a different name and went unanswered. It would be better if you had posted your answer for guidance.

    https://www.askmehelpdesk.com/accounting/profits-have-been-decreasing-several-years-pegasus-airlines-effort-511502.html"]https://www.askmehelpdesk.com/accounting/profits-have-been-decreasing-several-years-pegasus-airlines-effort-511502.html[/URL]

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