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Profits have been decreasing for several years at Jetblue. In an effort to improve the companys 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 (190 seats 40% occupancy $240 ticket price)	$ 18,240	100.0%
Variable expenses ($18.00 per person)	1,368	7.5
Contribution margin	16,872	92.5%
Flight expenses:
Salaries, flight crew	$ 1,800
Flight promotion	800
Depreciation of aircraft	1,800
Fuel for aircraft	5,400
Liability insurance	5,400
Salaries, flight assistants	1,200
Baggage loading and flight preparation	1,900
Overnight costs for flight crew and assistants at destination	500
Total flight expenses	18,800
Net operating loss	$ (1,928)

The following additional information is available about flight 482:

1. 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.

2. 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.

3. 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 companys total baggage loading and flight preparation expenses.

4. If flight 482 is dropped, Jetblue has no authorization at present to replace it with another flight.

5. Aircraft depreciation is due entirely to obsolescence. Depreciation due to wear and tear is negligible.

6. Dropping flight 482 would not allow Jetblue 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?

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A Company purchases the 80,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $11.20 per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than buying them from an outside supplier. However, the companys chief engineer is opposed to making the starters because the production cost per unit is $11.70 as shown below:

	Per Unit	Total
Direct materials	$ 5.00
Direct labor	3.00
Supervision	1.50	$ 120,000
Depreciation	1.20	$ 96,000
Variable manufacturing overhead	0.70
Rent	0.30	$ 24,000
Total product cost	$ 11.70

If they decides to make the starters, a supervisor would have to be hired (at a salary of $120,000) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $81,000 per period. Depreciation is due to obsolescence rather than wear and tear.

Required:

What is the financial advantage (disadvantage) of making the 80,000 starters instead of buying them from an outside supplier?

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