Management Accounting College Case Study Example | Topics and Well Written Essays - 1000 words

Management Accounting College - Case Study ExampleMost incumbents at the sentence of the entry of Southwest Airlines argon showing small profits because of low consumer demand, high operation and aid costs. However, Southwest Airlines introduction of a new worry model significantly altered this situation.It can be recalled that deregulation has lowered the barrier to entry in the industry as well as enhance the competitiveness of the players which are previously receiving subsidy from the government. This, in turn, largely contributes to the cost efficiency of airline operators kicking them to charge lower prices to passengers. A low cost newsboy like Southwest Airlines typically adopts a business model which offers only a single passenger class and a single type of airplane which allows the company to cut on training and servicing costs. Budget airlines also typically employ a very simple fare scheme which rewards primeval reservation by increasing the fare charged as the pla ne fills up. There is usually no reserved seating in establish to allow customers to choose their own seats thereby encouraging early and quick boarding (Sorensen 2006). In order to drive down operation costs, technological intention particularly the internet is used in order to eliminate the huge commission usually passed on to travel agencies. Budget airlines also prefer fast-flying on secondary and simplified routes as well as having relatively shorter flights and faster turnaround times. Budget airlines, unlike larger air companies usually foreshorten in-flight catering and other complimentary services replacing this with optional paid-for-in-flight food and drinks. In order to insulate themselves from future increases in oil prices, budget airlines ofttimes undertake aggressive fuel hedging, that is, making advance purchases of fuel at a fixed price for future delivery (Fuel Hedging 2006). The operation of an airline necessitates the investment in capital which includes the planes, and ports among others. Southwest Airlines also recruited pilots, stewardess, and staff which will run the operation. The company also pays mechanic for the maintenance of its fleet. Looking the companys cost organize it incurs both direct and indirect costs in order to keep the business running. The fixed costs associated with Southwest Airlines trading operations include the monthly maintenance of the mechanic, the insurance paid for its fleet, the expenses associated with the leased properties like the airport, electricity expenses in its offices, and even the rent expense that it pays for its booking premises. These fixed costs can be seen as indirect expenses because they cannot be necessarily identified with a specific product or value (Garrison et al, 2007). These costs are incurred as the air carrier operates and are very significant to keep it in business. However, they cannot be directly linked to the specific process of product and process costs. In its daily o perations, Southwest Airlines shoulders operations cost. As opposed to business organizations which can directly identify the costs associated in creating a product which is suitable to a specific customer order or requirement, Southwest Airlin