Dino's, Inc., makes a variety of T-shirts with logos. The company has discovered a new market for sweatshirts with logos. Market research
indicates that a sweatshirt like this would sell well in the market priced at $37.20 each. Dino's desires an operating profit of 20 percent of costs.
What is the highest acceptable manufacturing cost for which Dino's would be willing to produce the sweatshirt?
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.
Segmented income statements for a typical month appear as follows (all amounts in millions of dollars):
Fixed costs allocated to routes
a. Prepare a differential cost schedule.
b. Indicate whether Free flight should drop the routes between the U.S. and Europe.