Question

Roy Travel offers helicopter service from suburban towns to John F. Kennedy International Airport in New York City. Each of its 10 helicopters makes between 900 and 1,800 round-trips per year. The records indicate that a helicopter that has made 900 round-trips in the year incurs an average operating cost of $385 per round-trip, and one that has made 1,800 round-trips in the year incurs an average operating cost of $250 per round-trip. Read the requirements. 1 Requirements Requirement 1. Using the high-low method, estimate the linear relationship round-trips it makes to JFK airport during the year. y = $243,000 + $115 Requirement 2. Give examples of costs that would be included in a and in b. Begin by selecting which type of costs "a" and "6" represent, then select the d 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 Roy Travel expects each helicopter to make, on average, 1,300 round-trips in the coming year, what should its estimated operating budget for the helicopter fleet be? "a" = Fixed costs "b" = Variable costs Depreciation Insurance Baggage handling Fuel Landing fees Salaries Print Print Done Done Requirement 3. If Roy Travel expects each helicopter to make, on average, helicopter fleet be? Roy Travels estimated operating budget for all 10 helicopters in the fleet combined should be $

Answer 1

Using high low method, variable cost per trip = Difference in cost/Difference in trips

= (250*1800 – 900*385)/(1800-900)

= $115 per trip

Fixed cost = Total cost – variable cost

= 900*(385-115)

= $243,000

Hence, the equation is y = 243000 + 115X

Fixed and variable costs have been correctly classified

3.Operating budget = (243000 + 115*1300)*10

= $3,925,000