Question

Thinking of a trip that you or someone you know, is planning on taking. In planning a budget for the trip, what types of costs should be included in the budget? List at least five costs. Classify the costs as either fixed or variable, explaining what the variable cost drivers are.

Answer 1

Solution:

Costs to be considered in planning a budget for a trip

1. Accommodation and lodging : It includes choosing the type of accommodation you prefer, whether it’s hotels, hostels or guesthouses, or apartment rentals and the rates are usually based on number of nights of stay. Hence its a variable cost driven by number of nights of stay.

2. Food : This includes meals to be consumed during the day at the places of travel. Again, this cost changes with number of meals, nature of food, type of restaurant/hotel/cafe. Hence this is also a variable cost driven by number of meals, nature of food, type of restaurant/hotel/cafe.

3. Travelling costs : Travelling includes domestic as well as international and could be through different modes (air, road, rail) and in different categories (economy, business) depending on the budget involved. Air and marine travel is comparatively more expensive than road travel in some countries. Hence, travel cost is also a variable cost driven by modes of travel and the categories of travel.

4. Activities : This could include  taking any tours on your vacation, entrance fees for museums, parks, ruins, or other attractions. scuba diving or a hot air balloon ride. Usually, the costs of any of the above mentioned activities are fixed since these activities are offered at a fixed rate and should you opt to participate in any of the above activities you have to pay the fixed amount no matter what.

5. Travel insurance : Travel insurance is an insurance cost for covering unforeseen losses incurred while travelling, either internationally or domestically. This cost will incur no matter what. Hence it will be classified as fixed cost,