Profits have been decreasing for several years at Pegasus Airlines. In an effort to impr 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 (170 seats x 40% occupancy * $230 ticket price) Variable expenses ($19.00 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 $15,640 1,292 14,348 $ 2,000 790 1,550 5,400 4,800 1,500 1,800 600 18,440 $(4,092) 100.0% 8.3 91.7% 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.
Profits have been decreasing for several years at Pegasus Airlines. In an effort to impr 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 (170 seats x 40% occupancy * $230 ticket price) Variable expenses ($19.00 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 $15,640 1,292 14,348 $ 2,000 790 1,550 5,400 4,800 1,500 1,800 600 18,440 $(4,092) 100.0% 8.3 91.7% 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.
Essentials of Business Analytics (MindTap Course List)
2nd Edition
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Chapter15: Decision Analysis
Section: Chapter Questions
Problem 7P: Myrtle Air Express decided to offer direct service from Cleveland to Myrtle Beach. Management must...
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