Activity 2
Managerial Accounting
Activity 2.4 - Case Study 1: Cost Terms and Concepts
In this module you will have an opportunity to demonstrate your understanding of cost terms and their application in the aviation industry.
For this Case Study complete the four requirements below:
1. ABC Airlines has determined both the fixed and variable costs per flying hour associated with flying each of the 10 different types of aircraft in their fleet. How might this type of information be useful in determining the costs associated with flying different aircraft on specific routes? Knowing the variable and fixed per flying hour costs associated with each of ABC's 10 airframes is extremely useful. Fixed costs are straight forward. Variable costs are defined as those costs that vary with aircraft usage. As the aircraft usage increases, the variable cost will increase as well. The cost per unit stays the same. For example, the more an airplane flies, the higher the total fuel cost will be. Therefore, fuel is a variable cost. Common examples of variable costs include: Fuel, Oil, Landing Fees, and Catering. Therefore, by being able to calculate the variable costs and adding them to the known fixed costs, ABC can select the most cost effective airframe solution for a given route. For example, flying a large capacity plane on a lower demand traffic route proves to be quite inefficient, once all variable operational costs are calculated.
2. You are a management analyst for XYZ aircraft manufacturing company. Your company is considering either to purchase or lease manufacturing equipment. Identify, discuss, and be specific on five differential costs that might exist between the two options. You can develop any assumptions you want for either alternative, but if you do, they should be explained. Differential cost is the difference between the cost of two alternative decisions, or of a change in output levels. Additionally, the differential cost can be a fixed cost or variable
Activity 2.4 - Case Study 1: Cost Terms and Concepts
In this module you will have an opportunity to demonstrate your understanding of cost terms and their application in the aviation industry.
For this Case Study complete the four requirements below:
1. ABC Airlines has determined both the fixed and variable costs per flying hour associated with flying each of the 10 different types of aircraft in their fleet. How might this type of information be useful in determining the costs associated with flying different aircraft on specific routes? Knowing the variable and fixed per flying hour costs associated with each of ABC's 10 airframes is extremely useful. Fixed costs are straight forward. Variable costs are defined as those costs that vary with aircraft usage. As the aircraft usage increases, the variable cost will increase as well. The cost per unit stays the same. For example, the more an airplane flies, the higher the total fuel cost will be. Therefore, fuel is a variable cost. Common examples of variable costs include: Fuel, Oil, Landing Fees, and Catering. Therefore, by being able to calculate the variable costs and adding them to the known fixed costs, ABC can select the most cost effective airframe solution for a given route. For example, flying a large capacity plane on a lower demand traffic route proves to be quite inefficient, once all variable operational costs are calculated.
2. You are a management analyst for XYZ aircraft manufacturing company. Your company is considering either to purchase or lease manufacturing equipment. Identify, discuss, and be specific on five differential costs that might exist between the two options. You can develop any assumptions you want for either alternative, but if you do, they should be explained. Differential cost is the difference between the cost of two alternative decisions, or of a change in output levels. Additionally, the differential cost can be a fixed cost or variable