User Profits have been decreasing for several years at Fly with Us (FWU) Airlines. In an effort to improve the company's performance, consideration is being given to dropping several flights that appear to be unprofitable.

A typical income statement for one such flight (Flight 401) follows:

Ticket revenue (125 seats x 80% occupancy $650 ticket price)

$ 65,000 100.0%

Less: Variable expenses ($52 per person)

5200

8.0

Contribution margin

59,800

92.0%

Less: Flight expenses:

Salaries, flight crew -8,100

Flight promotion- 3,250

Depreciation of aircraft- 6,500

Fuel for aircraft - 31,200

Liability insurance- 19,500

Salaries, flight attendants- 2,300

Baggage loading and flight preparation-7,800

Overnight costs for flight crew and attendants at destination -1,300

Total flight expenses- 79,950

Net operating loss -$ (20,150)

The following additional information is available about Flight 401:

a. Members of the flight crew are paid fixed annual salaries, whereas the flight attendants are paid by the flight. b. One-third of the liability insurance is a special charge assessed against Flight 401 because, in the opinion of the Insurance company.

the destination is in a high-risk area. The remaining two-thirds would be unaffected by a decision to drop Flight 401. c. The baggage loading and flight preparation expense is an allocation of ground crew's salaries and depreciation of ground equipment. Dropping Flight 401 would have no effect on the company's total baggage loading and flight prepartion expenses.

d. If Flight 401 is dropped, FWU Airlines has no authorization at present to replace it with another flight. e. Depreciation of aircraft is due entirely to obsolescence. Depreciation due to wear and tear is negligible.

Dronning Elight 101 would not allow EMI I Airlinac in rature the number of aircraft in ite float or the number of flight crew on its payroll Prepare an analysis showing what impact dropping Flight 401 would have on the FWU's profits. (Do not round intermediate calculations. Negative amounts

1.

should be indicated with a minus sign.)

Flight costs that can be avoided if the flight is discontinued