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Dropping or retaining a flight

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Airline Cost and Strategic Scheduling Problem. See attached file for full problem description.

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Solution Summary

The posting has solution to problem 13-20 relating to dropping or retaining flight 306 of Atlantic Airlines.

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1. Contribution margin lost if the flight is discontinued $(12,950 )
Flight costs that can be avoided if the flight is
discontinued:
Flight promotion $ 750
Fuel for aircraft 5,800
Liability insurance (1/3 x $4,200) 1,400
Salaries, flight assistants 1,500
Overnight costs for flight crew and assistants 300 9,750
Net decrease in profits if the flight is discontinued $ (3,200 )

The following costs are not relevant to the decision:

Cost Reason
Salaries, flight crew Fixed annual salaries, which will not
change.
Depreciation of aircraft Sunk cost.
Liability insurance (two thirds) Two thirds of the ...

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