Cost Accounting in The Travel Company: A case study of the cost of customization in the group travel industry

Abstract: The Travel Company is a company within the group travel industry offering their customers the option to completely customize their tours. This study analyzes the cost accounting of the customized tours. It examines the implications of the current cost accounting system and evaluates alternative cost accounting methods. The study is a qualitative case study and empirical information has been gathered through interviews. The cost accounting theories used are Direct Costing, Full Costing and Activity Based Costing. With their current cost accounting system the company calculates the price of a tour through summing up the tour’s direct costs and adding a margin incorporating both indirect costs and profit. The size of the margin is dependant on a part of the direct costs. For customized tours a customization fee is added to the margin. However, there are large variations in time consumption, and thereby indirect costs, for different tours. We suggest that the company implements Full Costing with time as a cost driver and allocates indirect costs based on time consumption. To permit that, a time measurement system must be implemented, enabling a classification system with categories based on time consumption. Indirect costs would be allocated based on the classification system. The system would improve the company’s pricing and tour portfolio decisions.