Question

Richardson Travel offers helicopter service from suburban towns to John F. Kennedy International Airport in New York City. Each of its 15 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 ​$350 per​ round-trip, and one that has made 2,000 ​round-trips in the year incurs an average operating cost of ​$300 per​ round-trip.

Using the​ high-low method, estimate the linear relationship y equals a plus 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

Y = $100,000 + $250X

Step-by-step explanation:

For computing the linear relationship, first we need to compute the variable cost and fixed cost by using the high low method is shown below:

Before that first we have to determine the total cost

Total cost of 1,000 round-trips = $350 × 1,000 = $350,000

Total cost of 2,000 round-trips = $300 × 2,000 = $600,000

Now the variable cost per round trip is

= ($600,000 - $350,000) ÷ (2,000 - 1,000)

= $250

Variable cost per round-trip is $300.

And, the fixed cost is

= $600,000 - 2,000 × $250

= $600,000 - $500,000

= $100,000

Now the linear relationship is

Y = $100,000 + $250X