am not even sure where to get started on this.
Reisen Travel offers helicopter service from suburban towns to John F. Kennedy International Airport in New York City. Each of its 10 helicopters makes
between 1,000 and 2,000 round-trips per year. The records indicate that a helicopter that has made 1,000 round-trips in the year incurs an average operating cost of $300 per round-trip, and one that has made 2,000
round-trips in the year incurs an average operating cost of $250 per round-trip.
1. Using the high-low method, estimate the linear relationship y = a + bX, where y is the total annual operating cost of a helicopter and X is the number of round-trips it makes to JFK airport during the year.
2. Give examples of costs that would be included in a and in b.
3. If Reisen Travel expects each helicopter to make, on average, 1,200 round-trips in the coming year, what should its estimated operating budget for the helicopter fleet be?
How would you determine the most important cost driver when estimating cost functions in the case of Reisen Travel? Identify the cost driver and how it would impact Reisen’s operating budget.
Measure the distance of the diagonal (from one corner to the opposite corner) of the screen on your computer monitor to the nearest tenth of a centimeter or sixteenth of an inch. Measure the height of the screen along the vertical as well. Use the Pythagorean theorem to find the width along the horizontal
To estimate the linear relationship between the total annual operating cost of a helicopter and the number of round-trips it makes to JFK airport during the year using the high-low method, follow these steps:
1. Identify the highest and lowest data points available: In this case, the highest and lowest data points are given in the problem statement: 2,000 round-trips and 1,000 round-trips, respectively.
2. Calculate the difference in operating costs corresponding to the highest and lowest data points: The difference in operating costs is $300 - $250 = $50.
3. Calculate the difference in round-trips corresponding to the highest and lowest data points: The difference in round-trips is 2,000 - 1,000 = 1,000.
4. Calculate the variable cost per round-trip (b): Divide the difference in operating costs ($50) by the difference in round-trips (1,000). The variable cost per round-trip is $50 / 1,000 round-trips = $0.05 per round-trip.
5. Calculate the fixed cost (a): To calculate the fixed cost, use the equation y = a + bX and substitute the values of one of the data points (either the highest or lowest). Let's use the lowest data point: $300 = a + $0.05 * 1,000 round-trips. Rearrange the equation to solve for a: a = $300 - $0.05 * 1,000 round-trips = $300 - $50 = $250.
Therefore, the estimated linear relationship between the total annual operating cost of a helicopter and the number of round-trips it makes to JFK airport during the year is: y = $250 + $0.05X.
Now let's move on to the examples of costs included in 'a' and 'b':
- The fixed cost 'a' includes costs that do not vary with the number of round-trips, such as insurance, depreciation, administrative expenses, and salaries of employees not directly involved in operating the helicopters.
- The variable cost per round-trip 'b' includes costs that are directly related to the number of round-trips, such as fuel, maintenance, landing fees, and crew salaries.
Next, to estimate Reisen Travel's operating budget for the coming year with an expected average of 1,200 round-trips:
6. Plug in the value of X (1,200 round-trips) into the estimated cost function (y = $250 + $0.05X) to find the estimated operating cost of a helicopter: y = $250 + $0.05 * 1,200 round-trips = $250 + $60 = $310.
So, Reisen Travel's estimated operating budget for the helicopter fleet would be $310 per helicopter, multiplied by the number of helicopters they have.
To determine the most important cost driver when estimating cost functions in the case of Reisen Travel, you should analyze how each cost item's magnitude changes with respect to the cost driver. In this case, the cost driver could be the number of round-trips to JFK airport. By observing the changes in various costs with respect to the number of round-trips, you can identify which cost item has the most significant impact on the operating budget. For example, if fuel costs increase significantly with additional round-trips, it could be deemed as the most important cost driver. The impact on Reisen's operating budget would be the need to allocate more funds for fuel expenses, which would increase as the number of round-trips increases.