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Differential costs of upgrading high passengers are non-existent if costing a flight by seat-mile as most airlines do. Each seat will cost the same amount unless you include amenity costs that are typically charged for better seating. The opportunity cost of upgrading a passenger is the loss of the additional price of the seat the passenger is being upgraded to in the event that within the remaining time before the flight a passenger attempts to purchase that seat which is no longer available. The opportunity costs of not upgrading a high volume passenger is a lower satisfaction level for that passenger who is a repeat customer and could cause them to choose another airline that takes better care of them, additionally, it can be said that a customer who needs to book a last minute flight will generally be more satisfied with any seat, including economy so long as they can get onto the flight. Upgrading a high volume passenger opens a less expensive, lower class seat to be available for any customer who attempts to get a last minute flight and increases satisfaction of both customers. In the case of selling a last minute ticket, fixed costs are not relevant because they will be incurred whether the ticket is sold or not, therefore they should not be considered (Miller, 2018, p.1153). Therefore, variable costing is an appropriate costing method to use. Reference Miller-Nobles, T. & Mattison, B. & Matsumura, E. (2018). Horngren’s financial & managerial accounting: the financial chapters. 6th ed.
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