Freeflight Airlines is presently operating at 70 percent of
capacity. Management of the airline is considering dropping
Freeflight’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 fixed costs would be reduced by 20 percent.

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Segmented income statements for a typical month appear as
follows (all amounts in millions of dollars):

Routes Within U.S. Within Europe Between U.S.
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 profit
(loss)

$

0.3

$

0.3

$

(0.1

)

Required:

a. Prepare a differential cost schedule.
(Enter your answers in millions rounded to 2 decimal
places.)

b. Should Freeflight drop the routes between
Europe and the United States?

Yes
No

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