Question 1

The Business Times on 27 Jul 2023 reported that “Amid pent-up demand for air travel, Singapore Airlines (SIA) posted a net profit of S$734 million for the first quarter of its current financial year. It is a record quarterly performance in the carrier’s history”. However, on 3 Aug another report appeared on Business Times that stated that “SIA’s elevated profitability won’t last forever”. This clearly suggests that airline industry is a dynamic and highly competitive sector.

Operating in an environment characterized by fluctuating fuel prices, regulatory challenges, and ever-evolving customer expectations, airlines must navigate complex economic terrain to remain profitable and sustainable.
One of the fundamental cornerstones of effective management within the airline industry is a comprehensive understanding of costs. The ability to dissect, analyse, and harness cost data isVnot merely an administrative exercise; it is a strategic imperative that underpins an airline’s ability to thrive in a challenging marketplace.

Required:

(a) Explain the term “costs” as used in managerial accounting and show how costs are different from expenses as used in financial accounting. In the context of the airline industry, give four (4) examples of costs.

(b) Discuss why in the study of management accounting, so much attention is focused on costs and efficiency and show how the understanding of costs can help the airline industry in:
(i) Cost control;
(ii) Decision making;
(iii) Performance evaluation; and
(iv) Resource allocation.The Business Times on 27 Jul 2023 reported that “Amid pent-up demand for air-travel, Singapore Airlines (SIA) posted a net profit of S$734 million for the first quarter of its current financial year. It is a record quarterly performance in the carrier’s history”.

However, on 3 Aug another report appeared on Business Times stated that “SIA’s elevated profitability won’t last forever”. This clearly suggests that airline industry is a dynamic and highly competitive sector. Operating in an environment characterized by fluctuating fuel prices, regulatory challenges, and ever-evolving customer expectations, airlines must navigate complex economic terrain to remain profitable and sustainable.

One of the fundamental cornerstones of effective management within the airline industry is a comprehensive understanding of costs. The ability to dissect, analyse, and harness cost data is not merely an administrative exercise; it is a strategic imperative that underpins an airline’s ability to thrive in a challenging marketplace.
Required:

(a) Explain the term “costs” as used in managerial accounting and show how costs are different from expenses as used in financial accounting. In the context of the airline industry, give four (4) examples of costs.

(b) Discuss why in the study of management accounting, so much attention is focused on costs and efficiency and show how the understanding of costs can help the airline industry in:
(i) Cost control;
(ii) Decision making;
(iii) Performance evaluation; and
(iv) Resource allocation.

(c) Explain the meaning of cost objects. Give four (4) examples of cost objects from the airline industry. Show why managers might be interested in knowing the costs.