Radig Travel offers helicopter service from suburban towns to John F. Kennedy International Airport in New York City. Each of its fourteen helicopters makes between 1,100 and 2,200 round-trips per year. The records indicate that a helicopter that has made 1,100 round-trips in the year incurs an average operating cost of $500 per round-trip, and one that has made 2,200 round-trips in the year incurs an average operating cost of $400 per round-trip. Read the requirements LOADING... . Requirement 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. = + Requirement 2. Give examples of costs that would be included in a and in b. Begin by selecting which type of costs "a" and "b" represent, then select the costs that correlate with that cost type, use each cost only once. "a" = "b" = Requirement 3. If Radig Travel expects each helicopter to make, on average, 1,600 round-trips in the coming year, what should be its estimated operating budget for the helicopter fleet? Radig Travel's estimated operating budget for all 14 helicopters in the fleet combined should be
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
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Radig Travel's estimated operating budget for all 14 helicopters in the fleet combined should be
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