80.2K

Verified Solution

Link Copied!

Use the following information to answer the questions. Member of the flight crew and flight assistants are paid fixed annual salaries. One fourth of the liability insurance is traceable to this flight. The baggage loading and flight preparation expenses is an allocation of ground crews salaries and depreciation of group equipment Dropping a flight would have no effect on the companys total baggage loading and flight preparation expenses. If the flight gets dropped the company will at the moment have no authorization to replace it with another flight. Aircraft depreciation is due entirely to obsolescence. Depreciation due to wear and tear is negligible. Dropping a flight would not allow the company to reduce the number of aircrafts in its fleet or the number of flight crew on its payroll.

Typical Income Statement for one roundtrip flight

Ticketing Revenue (180 seats* 40% occupancy*$250 ticket price): $1800000

Variable expenses ($20 per person): $144000

Contribution margin: $1656000

Salaries, flight crew: $400000

Flight promotion: $800

Depreciation of aircraft: $170000

Fuel for aircraft: $561000

Liability insurance: $510000

Salaries, flight assistants: $140000

Baggage loading and flight preparations: $170000

Overnight costs for flight crew and assistants at destination: $950

Total flight expenses: $2126000

Net Operating loss: $-470000

1) Identify each category how much of the cost is differential

Flight expenses with differential costs

Salaries, flight crew: $__

Flight promotion: $__

Depreciation of aircraft: $__

Fuel for aircraft: $ __

Liability insurance: $__

Salaries, flight assistants: $__

Baggage loading and flight preparations: $__

Overnight costs for flight crew and assistants at destination: $__

2) Calculate the financial advantage or disadvantage of dropping the flight. Indicate an advantage with a positive number and a disadvantage with a negative number.

Answer & Explanation Solved by verified expert

See Answer