Fundamentals Of Cost Accounting (6th Edition)
6th Edition
ISBN: 9781259969478
Author: WILLIAM LANEN, Shannon Anderson, Michael Maher
Publisher: McGraw Hill Education
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Chapter 1, Problem 15CADQ
Airlines are well known for using complex pricing structures. For example, it is often (but not always) less expensive to buy a ticket in advance than it is on the day of the flight. However, if the airline offered this lower (“discount”) fare for all seats, it could not remain in business. Why offer fares with different prices? What, if any, costs are different?
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Global Airlines is a major low-price airline carrier for both domestic and international travel. The company guarantees the “lowest price” ticket for travel within the United States. The “lowest price” ticket guarantee does not apply for travel on Monday mornings and Friday evenings, which are busy travel times for business travelers.
Q. What other factors should Global Airlines consider before implementing these pricing policies?
Airline pricing, considerations other than cost in pricing. Costal Airways is about to introduce a daily round-trip flight from New York to Los Angeles and is determining how to price its round-trip tickets.
The market research group at Costal Airways segments the market into business and pleasure travelers. It provides the following information on the effects of two different prices on the number of seats expected to be sold and the variable cost per ticket, including the commission paid to travel agents:
It is often said that the variable cost associated with a passenger of a low-cost airline carrier such as EasyJet or Ryanair is zero and this allows the airline to offer flights to customers at a very low price or even free. Explain whether you agree with this statement.
Chapter 1 Solutions
Fundamentals Of Cost Accounting (6th Edition)
Ch. 1 - Explain why it is important to consider the...Ch. 1 - Explain the differences between financial...Ch. 1 - Place the letter of the appropriate accounting...Ch. 1 - Distinguish among the value chain, the supply...Ch. 1 - Who are the customers of cost accounting?Ch. 1 - How can cost accounting information together with...Ch. 1 - Prob. 7RQCh. 1 - Does the passage of Sarbanes-Oxley mean that codes...Ch. 1 - Prob. 9CADQCh. 1 - Prob. 10CADQ
Ch. 1 - Prob. 11CADQCh. 1 - Its not the job of accounting to determine...Ch. 1 - Prob. 13CADQCh. 1 - How would cost accounting information help...Ch. 1 - Airlines are well known for using complex pricing...Ch. 1 - Hostess Brands makes a variety of baked goods just...Ch. 1 - What potential conflicts might arise between...Ch. 1 - Refer to the Business Application discussion of...Ch. 1 - Prob. 19CADQCh. 1 - Why does a cost accountant need to be familiar...Ch. 1 - Will studying cost accounting increase the chances...Ch. 1 - Prob. 22CADQCh. 1 - Value Chain and Classification of Costs Apple...Ch. 1 - Pfizer Inc., a pharmaceutical firm, incurs many...Ch. 1 - Tesla, Inc., incurs many types of costs in its...Ch. 1 - Prob. 26ECh. 1 - Accounting Systems McDonalds is a major company in...Ch. 1 - Accounting Systems Ford Motor Company manufactures...Ch. 1 - Cost Data for Managerial Purposes As an analyst at...Ch. 1 - Prob. 30ECh. 1 - Prob. 31ECh. 1 - Refer to the information in Exercise 1-31. The...Ch. 1 - Refer to Exhibit 1.5, which shows budgeted versus...Ch. 1 - Trends in Cost Accounting Required For each cost...Ch. 1 - Prob. 35ECh. 1 - Prob. 36ECh. 1 - Refer to the information in Exercise 1-32. Jon...Ch. 1 - Prob. 38PCh. 1 - Cost Data for Managerial Purposes Imperial Devices...Ch. 1 - Cost Data for Managerial Purposes You have been...Ch. 1 - Prob. 41PCh. 1 - Cost Data for Managerial Purposes Campus Package...Ch. 1 - Cost Data for Managerial Purposes KC Services...Ch. 1 - Cost Data for Managerial Purposes B-You is a...Ch. 1 - Cost Data for Managerial Purposes Toms Tax...Ch. 1 - Gilman’s Café is a popular restaurant in a local...Ch. 1 - Prob. 47PCh. 1 - Prob. 48PCh. 1 - Refer to Exhibit 1.5, which shows budgeted versus...Ch. 1 - Cost Data for Managerial PurposesFinding Unknowns...Ch. 1 - Prob. 51PCh. 1 - Prob. 52PCh. 1 - Prob. 53ICCh. 1 - Miller Cereals is a small milling company that...Ch. 1 - Before Miller Cereals can introduce the new...Ch. 1 - The following story is true except that all names...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Global Airlines is a major low-price airline carrier for both domestic and international travel. The company guarantees the “lowest price” ticket for travel within the United States. The “lowest price” ticket guarantee does not apply for travel on Monday mornings and Friday evenings, which are busy travel times for business travelers. Q. Why is Global Airlines not offering a price guarantee for flights on Monday mornings and Friday evenings? Do you agree with this policy? Explain briefly.arrow_forwardThis question builds on your work from B-1. Competition is fierce for the Chicago to Atlanta route, and the airline realizes that it may need to reduce the current ticket price. They ask you to provide projections for number of reservations, number of denied passenger check ins (due to overbooking), penalties, sales, net income, and profit margin for this route at different ticket prices. The average number of reservations for this route is 184 when the ticket price is $420, use those figures as a base for your calculations. The airline conducted a price sensitivity analysis and determined that for every $20 increase in ticket price, demand will decrease by 1 ticket reservation. Similarly, ticket sales will increase by 1 reservation for every $20 decrease in ticket price. Using an appropriate data table, calculate the number of reservations, number of passengers denied check ins (due to overbooking), total penalties, total sales, net income, and profit margin (as a percentage) for…arrow_forwardGlobal Airlines is a major low-price airline carrier for both domestic and international travel. The company guarantees the “lowest price” ticket for travel within the United States. The “lowest price” ticket guarantee does not apply for travel on Monday mornings and Friday evenings, which are busy travel times for business travelers. Q. Do these pricing practices of Global Airlines violate any anti-trust laws? Why or why not?arrow_forward
- Could tear-down methods be used effectively for target pricing in a service-industry company, such as a hotel or an airline? Explain.arrow_forwardThe WSJ recently presented data suggesting that United Airlines was not covering its costs onflights from San Francisco to Washington D.C. The article quoted analysts saying that Unitedshould discon- tinue this service. The costs per flight (presented in the article) included the costsof fuel, pilots, flight attendants, food, etc. used on the flight. They also included a share of thecosts associated with running the hubs at the two airports, such as ticket agents, buildingcharges, baggage handlers, gate charges, etc. Suppose that the revenue collected on the typi- calUnited flight from San Francisco to Washington does not cover these costs. Does this fact implythat United should discontinue these flights? Explainarrow_forwardFares and Fees in the Airline Industry Navigating the various websites for low fares, avoidingfees for checked bags and priority seating, and finding the right flight schedule can be a real challenge for the average airline passenger. The complexity of options and sources for purchasing a tickethave expanded significantly in recent years. And the outlook for the future is far more complex, asnew search sites (Google, Hipmunk, etc.) become available and some airlines seek more control overwhere and how tickets on their flights are purchased. According to Forrester Research, an independent research company, the airlines want passengers to buy tickets based on value and not on lowprices. They do not want passengers to comparison shop. One major airline even announced that itwanted to deliver fare information directly to customers and to bypass search systems such as Expediaor Travelocity.Required1. Explain why you think competition in the airline industry is a cost leadership or a…arrow_forward
- 1. If the company accepts this offer and rejects some business from regular customers so as not to exceed capacity, what would be the total net operating income next year? 2. If the company rejects the offer of the foreign distributor, how much is the opportunity cost?arrow_forwardWhich of the following statements is not correct? Multiple Choice Price discrimination is the practice of selling identical goods or services to different customers at different prices. Peak-load pricing is the practice of setting prices highest when the quantity demanded for the product approaches the physical capacity to produce it. Price fixing is a particular legal and ethical problem because it is not universally illegal. Dumping is the practice of setting the selling price of a product at a low price with the intent of driving competitors out of the market or creating a barrier to entry for new competitors.arrow_forwardIs it possible for the airline to increase their ticket price further? How will it affect their revenue?arrow_forward
- The difference between the average customer’s willingness to pay and the total costs of a product is known as ______. When a company makes a profit, the difference between the price of the product and the cost of production is known as what? Value creation and value capture are key concepts for which parts of business? If a company innovates in a way that reduces its production costs without affecting any features of the product, would that create value? Suppose a price war was to erupt in the airline market, which causes prices for flights to decline, but affected nothing else about the industry. Would this change the value created by airlines? Suppose a price war was to erupt in the airline market, which causes prices for flights to decline, but affected nothing else about the industry. Would this change the value captured by airlines? Please solve all part and do not give solution in image format thankuarrow_forwardOn-time arrivals, lost baggage, and customer complaints are three measures that are typically used to measure the quality of service being offered by airlines. Suppose that the following values represent the on-time arrival percentage, amount of lost baggage, and customer complaints for 10 U.S. airlines. a. Based on the data above, if you randomly choose a Delta Air Lines flight, what is the probability that this individual flight will have an on-time arrival? b. If you randomly choose 1 of the 10 airlines for a follow-up study on airline quality ratings, what is the probability that you will choose an airline with less than two mishandled baggage reports per 1,000 passengers? c. If you randomly choose 1 of the 10 airlines for a follow-up study on airline quality ratings, what is the probability that you will choose an airline with more than one customer complaint per 1,000 passengers? d. What is the probability that a randomly selected AirTran Airways flight will not arrive on time?arrow_forwardDoes your current/future company price discriminate? Explain how the practice works (direct or indirect) and estimate the profit consequences of price discrimination relative to charging a single, uniform price. If your current/future company doesn't price discriminate, are there opportunities to do so? How would you design the price discrimination?arrow_forward
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