Cost Accounting for Service Businesses - Essay Example

Cost Accounting for Service Business Contents Contents 2 Difference between Fares 3 Costs Incurred by Airlines 3 Business Memo 4 References 5 IntroductionThe researcher has chosen US airways and American Airlines for doing the price comparison of the competing organizations. The researcher has chosen Fort Lauderdale, Florida, the United States as the departure city and Honolulu as the destination city. The date of starting the journey is 8th March and the return date would be 15th March. The researcher is using the ticket fares from the Expedia source.

Calculating the difference of the fares and calculating the fixed cost and variable cost, the researcher will prepare a business memo, which will be used by Sunshine Airlines.Difference between FaresThe return journey through American Airlines will cost $1,460, which would be a one-stop journey. For the two-stop journey, the fare would be $1,242 by American Airlines. On the other side, the fare for one-stop journey by US Airways would be $1,492 and for the two-stop journey, the fare would be $1,524 (Expedia, 2012).

It has been found by the researcher that in the case of American Airlines, the cost is lower for a two-stop return journey than a one-stop return one. However, in the case of US Airways, the fare for a two-stop return journey is higher than a one-stop return one. Moreover, the fare in US Airways is more than the fare of American Airlines. The fare is $32 more in case of US Airways when the one-stop return journey is considered. In case of the two-stop return journey, the fare is $282 more than American Airlines.

Costs Incurred by AirlinesThe fixed costs are the cost which is not dependent on the amount of goods. The company has to incur the cost no matter how much units have sold by the company. The variable costs are the type of costs which are dependent on the goods or services sold (Weygandt, Kimmel, & Kieso, 2009, p.211). The fixed cost in case of Airlines would be the cost of the planes, the cost of the fuel, staff salaries, etc. Airlines are mostly fixed cost based companies. The variable costs are very small like the costs incurred for facilitating the passengers.

The unit contribution margin is the amount the company gets against the sale of one unit. Airline companies are generating positive contribution margin from the fares. For an individual passenger, the cost incurred by the company is variable. They have to incur the fixed cost whether the plane is travelling with one passenger or whether the seats are full. However, they have to incur variable costs for the value added services provided to the customers. Business MemoIt has been found from the analysis of the fares of the airlines that American Airlines and US Airways are the two big players in the United States airline industry.

From the data and analysis, it is clear the fare of US Airways is more, the services of this airway is also better than American Airlines. However, the services of American Airlines are also good and the fare is reasonable. Therefore, it can be concluded by the researcher that the closest competitor of Sunshine Airlines is American Airlines.ReferencesExpedia. (2012). Fort Lauderdale, FL, United States (FLL) to Honolulu, HI, United States (HNL). Flights. Retrieved on: 7th March, 2012 from .Weygandt, J.

, Kimmel, P., & Kieso, D. (2009). Managerial accounting: Tools for business decision making. United States of America: John Wiley and Sons.