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Unformatted text preview: operating cost of a helicopter and X represents the number of round trips it makes annually. 2. The constant a (estimated as $100,000) represents the fixed costs of operating a helicopter, irrespect ive o f the number o f round trips it makes. This would include items such as insurance, registration, depreciat ion on the aircraft, and any fixed co mponent of pilot and crew salaries. The coefficient b (est imated as $250 per roundtrip) represents the variable cost of each round trip—costs that are incurred only when a helicopter actually flies a round trip. The coefficient b may include costs such as landing fees, fuel, refreshments, baggage handling, and any regulatory fees paid on a perflight basis. 3. If each helicopter is, on average, expected to make 1,200 round trips a year, we can use the estimated relationship to calculate the expected annual operating cost per helicopter: Y = $100,000 + $250 X X = 1,200 Y = $100,000 + $250 ´ 1,200 = $100,000 + $300,000 = $400,000 Wit h 10 helicopters in its fleet, Reisen’s est imated operating budget is 10 ´ $400,000 = $4,000,000. 109 1024 (20 min.) Estimating a cost function, highlow method. 1. See Solut ion Exhibit 1024. There is a posit ive relat ionship between the number o f service reports (a cost driver) and the customerservice depart ment costs. This relat ionship is economically plausible. 2. Number of CustomerService Service Reports Department Costs Highest observat ion of cost driver 436 $21,890 Lowest observat ion of cost driver 122 12,941 Difference 314 $ 8,949 Customerservice department costs = a + b (number of service reports) $8, 949 = $28.50 per service report 314 Constant (a) = $21,890 – $28.50 ´ 436 = $9,464 = $12,941 – $28.50 ´ 122 = $9,464 Customerservice = $9,464 + $28.50 (number of service reports) department costs Slopecoefficient (b) = 3. Other possible cost drivers of customerservice department costs are: a. Number o f products replaced wit h a new product (and the do llar value o f the new products charged to the customerservice department). b. Number of products repaired and the time and cost of repairs. SOLUTION EXHIBIT 1024 Plot of Number of Service Reports versus CustomerService Dept. Costs for Capitol Products CustomerService Department Cost s $25,000 20,000 15,000 10,000 5,000 $0 0 100 200 300 400 500 Number o...
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- Spring '10
- Cost Accounting