Determining cost drivers and cost function for Reisen Travel
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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.
Answer the following questions:
1. How would you determine the most important cost driver when estimating cost functions in the case of Reisen Travel?
2. Identify the cost driver and how it would impact Reisen's operating budget.
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Solution Summary
The solution explains how to determine the cost driver and cost function for a helicopter service operated by Reisen Travel and the impact on the operating budget.
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1. How would you determine the most important cost driver when estimating cost functions in the case of Reisen Travel?
A cost driver is any factor that has the effect of changing the level of total cost for a cost object and a cost object is any item or activity for which management desires to accumulate costs. In this case the helicopter is a cost object and the cost driver would be anything which changes the total costs of flying the ...
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