Freefl ight Airlines is presently operating at 70 percent of capacity. Management of the airline is considering dropping Freefl ight’s routes between Europe and the United States. If these
routes are dropped, the revenue associated with the routes would be lost and the related variable costs saved. In addition, the company’s total fi xed costs would be reduced by 20 percent.
Segmented income statements for a typical month appear as follows (all amounts in millions of dollars):
Between U. S.
Routes Within U. S. Within Europe and Europe
Sales $3.4 $2.6 $ 2.8
Variable costs 1.4 1.0 1.5
Fixed costs allocated to routes 1.7 1.3 1.4
Operating profi t (loss) $0.3 $0.3 $(0.1)
Required
Prepare a differential cost schedule like the one in Exhibit 4.8 to indicate whether Freeflight should drop the routes between the United States and Europe.