Discussion
Consider the following pairs of cost item and its category:
Depreciation - Fixed cost
Fuel - Variable cost
Landing fees - Variable cost
Insurance - Variable cost
How many of the pairs given above are correctly matched?
Answer: D
Correct answer: Only three
Three pairs are right. Depreciation is fixed, accruing with the calendar whether the aircraft flies or not; fuel is variable, consumed only in flight; and landing fees are variable, charged per movement.
The fourth is wrong. Insurance is a fixed cost - the hull and liability premium is set annually on the aircraft's value and the operator's record, and it is payable whether the aircraft flies a thousand hours or none. Applying the test - does it accrue if the aircraft stays on the ground? - settles each case.
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