FINANCE TASK Harvard Case Solution & Analysis

FINANCE TASK Case Solution

Question 1

a). Classification of Costs

i). The classification of the costs can be simply defined as the grouping of the costs based on their source, form and nature. The three main objectives for classifying costs are as follows:

  • The grouping of the costs in different types makes it easy to understand their effect on the business and helps the management to make key decisions with regard to these costs.
  • Another objective for the classification of the costs is proper presentation and recording of the data of the cost for cost reduction, cost control and measuring the efficiency of each activity.
  • The third objective for classifying the costs is to perform a correct analysis of the cost by process and the different elements forming the total cost.

ii).The three commonly used categories of costs with examples are as follows:

Fixed and Variable Costs

            Fixed costs are those costs which do not change with the change in the output. The examples of these costs are legal bills, insurance or the costs of building a factory. If the output is zero, then the fixed costs remain the same. On the other hand, variable costs are those which vary with the change in the output. For example, if a company has to produce more buses, then the management will have to use more raw materials such as metals. This is called as variable cost.

Product Costs Vs Period Costs

            The product costs are all the costs which are required in the production of the different products and they are recognized for the purpose of financial reporting when the final product is sold. Examples of these costs are direct labor, direct materials, factory depreciation, factory wages, etc. On the other hand, period costs are all the remaining costs other than the product costs. Examples of these costs are administrative costs, marketing costs and etc.

Controllable and Uncontrollable Costs

            Controllable costs are all those costs which could be influenced or changed by the action of the management taking the final decision. Examples of these costs include direct material cost, direct labor cost and direct expenses. On the other hand, uncontrollable costs are those which can never be influenced by the management making the final decision. One of the examples of uncontrollable cost is the insurance. For instance, a manager running a supervisor on the company’s floor does not have any control on the liability insurance which is bought by his company.

b) Computations

i) & ii) Ticket prices for one way and return ticket are shown in the table below. The calculations could be seen in the excel spreadsheet.

Annual CostsOne Way Ticket priceReturn Ticket Price
Fuel Costs

144500000

289000000

Service & Repair Costs

86700000

173400000

 Aviation annual route license

20000

20000

 Commission to travel agents

55080000

110160000

 Meals and entertainment during flight

18360000

36720000

 Insurance (passengers & aircraft)

100000

100000

 Salary to pilot and flight attendants

600000

600000

 Depreciation of aircraft

867000000

1734000000

 Other operational overheads allocated to the route

200000

200000

Total Costs

1172560000

2344200000

Costs per Flight

1724353

1723676

Ticket price (Inclusive of Tax)

2000249

1999465

Discounts

None

99973

Ticket Prices

2000249

1899491

The two important factors which should be considered by the airline in setting the prices are s follows:

  • One of the important factors to consider in setting the airline ticket prices is the competition in the market. For instance, the low cost carriers in the market set the price of their airlines which is lower than the other airlines and the other companies are compelled to match those prices to avoid the risk of flying empty seats or lose the customers.................
  • This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.
FINANCE TASK Case Solution Other Similar Case Solutions like

FINANCE TASK

Share This