Question

RocheRoche

Travel offers helicopter service from suburban towns to John F. Kennedy International Airport in New York City. Each of its

1111

helicopters makes between

1 comma 2001,200

and

2 comma 4002,400

​round-trips per year. The records indicate that a helicopter that has made

1 comma 2001,200

​round-trips in the year incurs an average operating cost of

​$535535

per​ round-trip, and one that has made

2 comma 4002,400

​round-trips in the year incurs an average operating cost of

​$500500

per​ round-trip.

1.

Using the​ high-low method, estimate the linear relationship

y equals a plus bXy=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

RocheRoche

Travel expects each helicopter to​ make, on​ average,

1 comma 8001,800

​round-trips in the coming​ year, what should its estimated operating budget for the helicopter fleet​ be?

Requirement 1. Using the​ high-low method, estimate the linear relationship

y equals a plus bXy=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.

=

+

Answer 1

Cost for 1200 trips = $535 x 1200 = $642000
Cost for 2400 trips = $500 x 2400 = $1200000

Variable Cost per trip = ($1200000-642000) / (2400-1200) = $465 per trip
Fixed Cost = $1200000 - 2400 x 465 = $84000

1. y = $84000 + $465 x

2. Examples of a = Fixed Cost, Depreciation, Insurance, Salaries
Examples of b = Variable Cost, Baggage handling, Fuel, Landing Fees

3.
Cost for one helicopter for 1800 trips = $84000 + 1800 x 465 = $921000
Cost for fleet of helicopters = $921000 x 11 = $10131000