Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the...
Fantastic news! We've Found the answer you've been seeking!
Question:
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/66488c2d27937_50866488c2cbd9d2.jpg)
Transcribed Image Text:
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 (160 seats x 40% occupancy x $250 ticket price) Variable expenses ($15.00 per person) Contribution margin Flight expenses: Salaries, flight crew Flight promotion Depreciation of aircraft Liability insurance Fuel for aircraft Salaries, flight assistants Baggage loading and flight preparation Overnight costs for flight crew and assistants at destination Total flight expenses Net operating loss. $ 16,000 960 15,040 100.0% 6 94% $ 2,000 780 1,700 5,700 5,400 1,300 1,700 700 19,280 $ (4,240) 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: 1. What is the financial advantage (disadvantage) of discontinuing flight 482? 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 (160 seats x 40% occupancy x $250 ticket price) Variable expenses ($15.00 per person) Contribution margin Flight expenses: Salaries, flight crew Flight promotion Depreciation of aircraft Liability insurance Fuel for aircraft Salaries, flight assistants Baggage loading and flight preparation Overnight costs for flight crew and assistants at destination Total flight expenses Net operating loss. $ 16,000 960 15,040 100.0% 6 94% $ 2,000 780 1,700 5,700 5,400 1,300 1,700 700 19,280 $ (4,240) 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: 1. What is the financial advantage (disadvantage) of discontinuing flight 482?
Expert Answer:
Posted Date:
Students also viewed these accounting questions
-
Guido is calculating his personal income tax. He has the following expenses, and wants to know what he can claim on his tax return. The following expenses are all related to Guido's personal...
-
The United States mandates only four benefits, yet U.S. employers provide many other benefits-such as health insurance, retirement benefits, and paid vacations-voluntarily. Why do so many employers...
-
A Peruvian investor buys 150 shares of a U.S. stock for $7,500 ($50 per share). Over the course of a year, the stock goes up by $4 per share. a. If there is a 10 percent gain in the value of the...
-
Like any retail company, Costco knows that some customers will return merchandise after the sale. When a June sale is returned in July, both the sale and the sales return are recorded in the same...
-
Lang and Thomas, a local CPA firm, has been asked to bid on a contract to perform audits for three counties in its home state. Should the firm be awarded the contract, it must hire one new staff...
-
Global Development Corp. pays its executives short-term incentives for meeting financial targets. What could be included in this incentive pay? stock options bonus for meeting the return on...
-
Saved Exam II 1 Fit-for-Life Foods reports the following income statement accounts for the year ended December 31. 20 Gain on sale of equipment Office supplies expense Insurance expense Sales Office...
-
Hamlet House makes portable garden sheds that sell for $1,800 each. The tax rate for the company is 35 percent. Costs are as follows: Per Unit Total Direct material $800 Direct labor 90 Variable...
-
Create a 3-4 page social media marketing plan based on their current efforts and your recommendations. Within the plan include the elements below: Evaluate the use of psychology in their current...
-
Portions of the financial statements for Peach Computer are provided below. Net sales Expenses: PEACH COMPUTER Income Statement For the year ended December 31, 2024 Cost of goods sold Operating...
-
At the end of this unit you will be completing a unit project. Feel free to work on this project as you work through each of the module 1 lessons. For the module project, imagine that you have two...
-
PLEASE ANSWER EVERYTHING WITH ALL THE INFORMATION DO NOT PARTIALLY ANSWER THIS In this you will investigate how different heuristics impact the performance of the A* algorithm. You will work on the...
-
You are saving for a new house and you put $5,000 per year in an account paying you 8% compounded annually. The first payment is done today. How much will you have by the end of the three years.
-
Answer the following two independent questions. a. MM Corporation is considering several proposed investments for the coming budget year. MM produces electrical apparatus for industrial complexes....
-
Explain the following terms and their relevance to debt-finance decision makers: (a) Negative covenant. (b) Conversion premium. (c) Collateral. (d) Strip bonds. (e) Sukuk.
-
Flying High plc plans to expand rapidly over the next five years and is considering the following forms of finance to support that expansion. (a) A five-year 10 million floating-rate term loan from...
-
Convertibles are great because they offer a lower return than straight debt and we just dish out shares rather than have to find cash to redeem the bonds executive at Myopic plc. Comment on this...
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App