ABSTRACT
This chapter incorporates a modern approach to the principles and practice of airline cost and production analysis. It introduces prospective airline managers to the technical cost accounting knowledge that can be applied across a whole range of organizations. Costs can be classified and grouped according to time. Historical costs are the costs actually incurred when acquiring an asset, whereas current costs are the costs incurred under prevailing market conditions. Finally, and perhaps most importantly, consider sunk costs. Sunk costs are the investments already made in the current planes and airport facilities that can't be recovered. Accounting costs generally recognize only explicit costs, while economic costs include both explicit and implicit costs. Cost functions specify the technical relationship between the level of production and the production cost. Costs that directly vary with changes in production are termed variable costs. A final and extremely important type of cost relating to output is marginal cost (MC).
