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: $17,940 1,464 16,536 100.ex 7.8 92.2% Ticket revenue (195 seats 48% occupancy $230 ticket price) Variable expenses ($18.00 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 $ 1,500 790 1,650 5,400 4,500 1,200 1,750 700 17,490 $ (954) 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 tiability insurance is a special charge ossessed 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 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 light 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? Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 36,000 Rets per year. Costs associated with this level of production and sales are given below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost Unit $ 25 8 3 7 2 6 $ 51 Total $ 900,000 269,080 108,000 252,000 72,800 216,000 $ 1,836,000 The Rets normally sell for $56 each Fixed manufacturing overhead is $252,000 per year within the range of 26,000 through 36,000 Rets per year. Required: 1. Assume that due to a recession, Poloski Company expects to sell only 26,000 Rets through regular channels next year. A large retail chain has offered to purchase 10,000 Rets if Polaski is willing to accept a 16% discount off the regular price. There would be no sales commissions on this order, thus, variable selling expenses would be slashed by 75%. However, Polaski Company would have to purchase a special machine to engrave the retail chain's name on the 10,000 units. This machine would cost $20,000. Polaski Company has no assurance that the retail chain will purchase additional units in the future. What is the financial advantage (disadvantage of accepting the special order? (Round your intermediate calculations to 2 decimal places.) 2. Refer to the original doto. Assume again that Poloski Company expects to sell only 26,000 Rets through regular channels next year The U.S. Army would like to make a one-time-only purchase of 10,000 Rets The Army would pay a fixed fee of $1.60 per Ret, and it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units Because the army would pick up the Rets with its own trucks, there would be no variable selling expenses associated with this order. What is the financial odvantage (disadvantage) of accepting the U.S. Army's special order? 3. Assume the same situation as described in (2) above, except that the company expects to sell 36,000 Rets through regular channels next year Thus, accepting the US Army's order would require giving up regular sales of 10,000 Rets. Given this new information, what is the financial advantage (disadvantage) of accepting the US Army's special order? The Rets normally sell for $56 each. Fixed manufacturing overhead is $252,000 per year within the range of 26,000 through 36,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 26,000 Rets through regular channels next year. A large retail chain has offered to purchase 10,000 Rets if Polaski is willing to accept a 16% discount off the regular price. There would be no sales commissions on this order, thus, varioble selling expenses would be slashed by 75%. However , Polaski Company would have to purchase a special machine to engrave the retail chain's name on the 10,000 units. This machine would cost $20,000. Polaski Company has no assurance that the retail chain will purchase additional units in the future. What is the financial advantage (disadvantage) of accepting the special order? (Round your intermediate calculations to 2 decimal places.) 2. Refer to the original data. Assume again that Poloski Company expects to sell only 26.000 Rets through regular channels next year The US Army would like to make a one time only purchase of 10,000 Rets. The Army would pay a fixed fee of $160 per Ret, and it would reimburse Poloski Company for all costs of production (variable and fixed) associated with the units. Because the army would pick up the Rets with its own trucks, there would be no variable selling expenses associated with this order What is the financial odvantage (disadvantage) of accepting the US Army's special order 3. Assume the same situation as described in (2) above, except that the company expects to sell 36,000 Rets through regular channels next year. Thus, accepting the US Army's order would require giving up regulor sales of 10,000 Rets. Given this new information, What is the financial advantage (disadvantage) of accepting the US Armys special order? 1 2 3 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: $17,940 1,464 16,536 100.ex 7.8 92.2% Ticket revenue (195 seats 48% occupancy $230 ticket price) Variable expenses ($18.00 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 $ 1,500 790 1,650 5,400 4,500 1,200 1,750 700 17,490 $ (954) 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 tiability insurance is a special charge ossessed 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 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 light 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? Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 36,000 Rets per year. Costs associated with this level of production and sales are given below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost Unit $ 25 8 3 7 2 6 $ 51 Total $ 900,000 269,080 108,000 252,000 72,800 216,000 $ 1,836,000 The Rets normally sell for $56 each Fixed manufacturing overhead is $252,000 per year within the range of 26,000 through 36,000 Rets per year. Required: 1. Assume that due to a recession, Poloski Company expects to sell only 26,000 Rets through regular channels next year. A large retail chain has offered to purchase 10,000 Rets if Polaski is willing to accept a 16% discount off the regular price. There would be no sales commissions on this order, thus, variable selling expenses would be slashed by 75%. However, Polaski Company would have to purchase a special machine to engrave the retail chain's name on the 10,000 units. This machine would cost $20,000. Polaski Company has no assurance that the retail chain will purchase additional units in the future. What is the financial advantage (disadvantage of accepting the special order? (Round your intermediate calculations to 2 decimal places.) 2. Refer to the original doto. Assume again that Poloski Company expects to sell only 26,000 Rets through regular channels next year The U.S. Army would like to make a one-time-only purchase of 10,000 Rets The Army would pay a fixed fee of $1.60 per Ret, and it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units Because the army would pick up the Rets with its own trucks, there would be no variable selling expenses associated with this order. What is the financial odvantage (disadvantage) of accepting the U.S. Army's special order? 3. Assume the same situation as described in (2) above, except that the company expects to sell 36,000 Rets through regular channels next year Thus, accepting the US Army's order would require giving up regular sales of 10,000 Rets. Given this new information, what is the financial advantage (disadvantage) of accepting the US Army's special order? The Rets normally sell for $56 each. Fixed manufacturing overhead is $252,000 per year within the range of 26,000 through 36,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 26,000 Rets through regular channels next year. A large retail chain has offered to purchase 10,000 Rets if Polaski is willing to accept a 16% discount off the regular price. There would be no sales commissions on this order, thus, varioble selling expenses would be slashed by 75%. However , Polaski Company would have to purchase a special machine to engrave the retail chain's name on the 10,000 units. This machine would cost $20,000. Polaski Company has no assurance that the retail chain will purchase additional units in the future. What is the financial advantage (disadvantage) of accepting the special order? (Round your intermediate calculations to 2 decimal places.) 2. Refer to the original data. Assume again that Poloski Company expects to sell only 26.000 Rets through regular channels next year The US Army would like to make a one time only purchase of 10,000 Rets. The Army would pay a fixed fee of $160 per Ret, and it would reimburse Poloski Company for all costs of production (variable and fixed) associated with the units. Because the army would pick up the Rets with its own trucks, there would be no variable selling expenses associated with this order What is the financial odvantage (disadvantage) of accepting the US Army's special order 3. Assume the same situation as described in (2) above, except that the company expects to sell 36,000 Rets through regular channels next year. Thus, accepting the US Army's order would require giving up regulor sales of 10,000 Rets. Given this new information, What is the financial advantage (disadvantage) of accepting the US Armys special order? 1 2 3