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 (175 seats × 40% occupancy × $240 ticket price) $ 16,800 100.0 % Variable expenses ($17.00 per person) 1,190 7.1 Contribution margin 15,610 92.9 % Flight expenses: Salaries, flight crew $ 1,700 Flight promotion 750 Depreciation of aircraft 1,650 Fuel for aircraft 5,000 Liability insurance 4,800 Salaries, flight assistants 1,200 Baggage loading and flight preparation 1,750 Overnight costs for flight crew and assistants at destination 600 Total flight expenses 17,450 Net operating loss $ (1,840 )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.