Estimating the Operating Budget
Reisen Travel offers helicopter service from suburban towns to the John F. Kennedy International Airport in New York City. Each of its 10 helicopters make between 1,000 and 2,000 trips in a year. The records indicate that a helicopter making 1,000 round-trips in a year incurs an average operating cost of $300 per round-trip and one making 2,000 round-trips in a year incurs an average operating cost of $250 per round trip.
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 a helicopter makes to the JFK airport in a year.
Give examples of costs that would be included in a and b.
If Reisen Travel expects each helicopter to make an average of 1,200 round-trips in the next year, what should be the company's estimated operating budget for the helicopter fleet?
Deliverables and format:
Microsoft Excel document, showing all calculations.
The solution explains how to determine the total cost function using high low method and to calculate the operating cost