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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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Solution Summary
This solution details each part of the cost accounting exercise 1-9, regarding the airline pricing structure. This solution is written based on 25+ years of professional accounting experience.
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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?
Solution:
This question generally appears in macroeconomics textbooks, and am a little surprised it's now being included in cost accounting. The reasons for why airlines do this is the same, whether we're talking about economics or cost accounting.
The airlines commonly engage in price discrimination. By offering seats at different prices, the ...
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