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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. Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the companys performance, consideration is being given to 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 (120 seats 40% occupancy $80 ticket price) $ 3,840 100 % Variable expenses ($14.00 per person) 672 17.5 Contribution margin 3,168 82.5 % Flight expenses: Salaries, flight crew $ 400 Flight promotion 680 Depreciation of aircraft 420 Fuel for aircraft 170 Liability insurance 300 Salaries, flight assistants 700 Baggage loading and flight preparation 185 Overnight costs for flight crew and assistants at destination 60 Total flight expenses 2,915 Net operating loss $ (253) Required: 1. Prepare an analysis showing what impact dropping flight 482 would have on the airline's profits.

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