A Large Airline Calculates That the Additional Cost of a Having

question 203

Essay

A large airline calculates that the additional cost of a having a passenger on a flight to the Bahamas as the cost of a bag of peanuts and a soft drink, which totals $1.50, but the airline's price is $600 for potential customers who want to buy vacant seats on the day of the flight.Which economic principle is this airline failing to utilize?

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Definitions:

Relevant Range

The range of activity within which the assumptions about fixed costs and variable unit costs are valid for purposes of budgeting and decision-making.

Direct Costs

Expenses that can be directly traced to the production of specific goods or services, such as raw materials and labor.

Period Costs

Expenses that are not directly associated with the production process and are expensed in the period they are incurred.

Financial Reporting

The process of producing statements that disclose an organization's financial status to management, investors, and regulators.