thursday Nov 11 2010
To illustrate the idea of incremental costing and pricing I used the example of the Last Minute Cruise. I mentioned that folks will show up an hour before the boat leaves the dock, hoping to make 'a deal' with the ship bursar on a discounted cabin. Well sure enoough
http://cruises.affordabletours.com/search/Last_Minute_Deals/
if you google last minute cruises you get quite a list of travel agents doing the same thing. No one wants to leave the dock with emtpy rooms. At that point the fixed costs are covered, the crew, the fuel, are all fixed costs. What will the incremental cost be of adding one more passenger. In this case our cost line Bx is not a straight line, it is dropping! I recall sitting by an officer on our Alaska and he said he knew nothing about navigating but he did know that we had eaten 1,032 eggs for breakfast.
Incremental costing and pricing usually sets fixed and sunk costs aside to look at the incremental cost of just one more order.
Professor Elam 
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