Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 19

As a marketing manager for an airline, would you sell a seat to a passenger who walked up to the gate at the last minute at the variable (marginal) cost? Why or why not? Do the costs from the accounting system include all relevant costs for the decision?

Step 1 of 2

Variable cost:

Variable cost: This cost is based on the level of production. Total variable costs changes with the change in the number of units of production but variable cost per unit remains constant. It is directly proportional to the number of goods produced and sold. It is deducted from the sales to arrive at the contribution.

Example: Cost of direct material, Cost of direct labor etc.