What costs are relevant when pricing a cargo ship cruise? Original blog posting (November 19, 2015)

Photographer: http://www.123rf.com/profile_werbeatelier_jbk Cargo Ship Cruises Freight ship companies have started to take passengers in addition to cargo to earn an additional source of revenue High demand – cruises are booking months in advance Generally 2 – 12 passengers with 15 – 25 crew members Average price is $115 per day Photographer: http://www.123rf.com/profile_werbeatelier_jbk

Question 1 What costs might be variable with respect to passengers carried on a cargo ship?

Question 2 What costs might be fixed with respect to passengers carried on a cargo ship?

Question 3 What costs and other information would be relevant when the cargo ship company makes its pricing decisions about how much to charge per passenger?

Question 4 Should the ship depreciation costs be allocated to the cost of a passenger cruise when pricing the passenger cruise? Explain.

Question 5 Several news sources state that passengers are “ten times more profitable” than regular freight. Why wouldn’t a freight company decide to take on more passengers and less cargo? How would costs change if more passengers were carried?

Question Recap What costs might be variable with respect to passengers carried on a cargo ship? What costs might be fixed with respect to passengers carried on a cargo ship? What costs and other information would be relevant when the cargo ship company makes its pricing decisions about how much to charge per passenger? Should the ship depreciation costs be allocated to the cost of a passenger cruise when pricing the passenger cruise? Explain. Several news sources state that passengers are “ten times more profitable” than regular freight. Why wouldn’t a freight company decide to take on more passengers and less cargo? How would costs change if more passengers were carried?

For additional news stories to use in the accounting classroom, see the Accounting in the Headlines blog at http://accountingintheheadlines.com/ Questions or comments? Contact Dr. Wendy Tietz at wtietz@kent.edu