Introduction To Managerial Accounting
8th Edition
ISBN: 9781259917066
Author: BREWER, Peter C., Garrison, Ray H., Noreen, Eric W.
Publisher: Mcgraw-hill Education,
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Chapter 11, Problem 21P
Requirement - 1:
To determine
Continue or Discontinue: For making decision about continuing or discontinuing a flight, we need to know the impact of that flight on the overall profits of the firm. So when overall operating profits are higher in case of continuing a flight then we will continue with the flight or vice versa.
To identify: Financial advantage (disadvantage) of discontinuing flight 482.
Requirement - 2:
To determine
To Explain: Impact of elimination of 10% its’ flight on profits.
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Dropping or Retaining a Flight
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:
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…
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 (165 seats × 40% occupancy × $230 ticket price)
$
15,180
100.0
%
Variable expenses ($17.00 per person)
1,122
7.4
Contribution margin
14,058
92.6
%
Flight expenses:
Salaries, flight crew
$
1,900
Flight promotion
790
Depreciation of aircraft
1,550
Fuel for aircraft
5,500
Liability insurance
5,100
Salaries, flight assistants
1,400
Baggage loading and flight preparation
1,900
Overnight costs for flight crew and assistants at destination
800
Total flight expenses
18,940
Net operating loss
$
(4,882
)
The…
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 (165 seats × 40% occupancy × $220 ticket price)$ 14,520100.0%Variable expenses ($20.00 per person)1,3209.1Contribution margin13,20090.9%Flight expenses: Salaries, flight crew$ 1,800 Flight promotion760 Depreciation of aircraft1,800 Fuel for aircraft5,400 Liability insurance5,100 Salaries, flight assistants1,200 Baggage loading and flight preparation1,750 Overnight costs for flight crew and assistants at destination700 Total flight expenses18,510 Net operating loss$ (5,310)
The following additional information is available about flight 482:
Members of the flight crew are paid fixed annual salaries, whereas the flight assistants are paid based on the number of round trips…
Chapter 11 Solutions
Introduction To Managerial Accounting
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