The most important accounting statements not just for Ryanair and EasyJet but for all companies are profit and loss statements. Those statements are showing to the companies how many sales they have generated over a period of time and what expenses they have incurred. That’s why they need to know what are their direct and indirect costs and also fixed and variable cost and also what they mean and I will be talking about those in my essay.

The direct and indirect cost are important as the companies have to know whether the cost item can be attributed to a single product or service, sometimes to a department. Direct cost can be linked to a particular product or service. However the indirect cost cannot be linked with a particular product or service and they are usually called general expenses or overheads. Analysing cost this way can be useful for detailed product costing or for control and accountability. For example in Easy Jest and Ryanair costs such as staff cost or rental of the aircraft will be the direct cost as they already know what money they will have to spent on those. However indirect cost will be for example fuel prices as they will not know the price of fuel every month as the fuel prices are changing all the time. Indirect cost must be apportioned to product, services or departments on a appropriate basis and this gives raise to absorption costing. However, the larger the proportion of indirect cost in a business, the less useful this type of analysis can be. It is true that the Ryanair company and easy jet company endeavour to identify costs according to departments, however the methods are used to apportion indirect costs to each department or product are often arbitrary and negate any benefit to be gained from the analysis. Generally this from of analysis is used in businesses where there is a significant tangible product and the company operates