This is an exercise in predictive analytics. Estimation of the cost function and evaluation of the cost function is an important skill for MBAs. As often happens, you will get a cost function that includes both fixed and variable components, so you will need to identify and separate those components. You will practice using the High-Low method and simple regression in the case.
One of the most common mistakes using the High-Low method is picking the wrong data points. For the 're - analyzing' case, we'll be using the spreadsheet called Exhibit 2 and 4 side by side.
Let's find the data points to use for the Delta Low values. The case specifies that we will compare Revenue Passenger Miles and salary expense. Locate the appropriate columns on the spreadsheet: Revenue Passenger Miles in column AF and Salary and Related Costs in column G. Find the lowest value for Revenue Passenger Miles in column AF. It should be no surprise that it is the first time period, 93T1, with a value of 14. Now, for the SAME TIME PERIOD, locate the entry in column G. Your value for Salary and Related Costs in 93T1 is $1200. The Delta High values for your analysis are obtained in a similar method. Always use the same time period for both variables.
A word about your regression analysis. Use ALL the data available for each airline. When you do this analysis, not to worry if your R-squared value is low; it doesn't give me the warm fuzzies either. A better value is obtained with a multiple regression, but that is not part of this assignment.
And, just to clarify, when you are asked for a cost function, the response should be the equation itself, in this case Salaries=FC + (VC * Revenue Passenger Miles).
On another topic in the discussion boards, refresh your memory about operating leverage from the text, not from Investopedia and the like. In this class we are concerned about cost structure.
DATA HAS BEEN PORTED FROM THE ORIGINAL QUESTION-both spreadsheets are on the bottom of the question. please assist and stop posting there is no data-DATA IS ON SPREADSHEETS ON THE BOTTOM
wa ATES Selected Quarterly Financial Data, Panel A: 1993-1998 Consolidated Statement of Income Operating Expenses 1 RE Www KAI WA WE CHT Operating Revenues In 59937 1,500 TH 195 117 ST 1.05 2010 1 61 3.3.1 g 1,161 Series 20 Sed 22 11 AR 1.14 Howed 247 14 1 C Ale w 116 and 40 114 M 1 Malta an where TO TI 2.10 2 Restaurang fee LIST Riga 19 27 BITE COM ILMI E 114 M WR 23 Lase es TA 1994 T. TI 14 STUS 165 77 104 TE 3 10 10 14 PI IL 104 M 41 15 TETT PTS ISO 11 1 TE TI M DU 11 IM Car 1 1 TI . 3335 4 LOH 19 5 1 V W PE M To 1996 1991 1997 TI 1993 1973 LIN 141 TIS 514 1.10 1.118 11:29 ! 554 29 201 117 174 191 19 W 7 114 1920 1 211 SE350 11414 111 177 1 190 112 1122 1.1 MS 1195 LS 2133 II 161 110 141 IN IN 17 197 13 1. LIN 1. I 1961 BIN 18 11 13 224 29 25 WWE IRI 114 201 213 14 IR 11 . WE 1 14 RIE 137 119 134 41 13 HO 3553 3153 PIMI 11 1144 T! 19 PRI 115 LIET WE 155 ME 230 201 1 17 1 18 17 MOS 114 18 1 10 IN IRE 14 SE 15 114 w WE War CIC WI 2 ! M S 14 10 151 11 21 194 MI CE! SP LE 2.72 18 SE 215 22 21 205 ONE LOTT ve LAN 1.314 1914 136 119 1911 12 13 IT T. STI 3000 11 TA TO TI NI 2011 2011 TI WE 14 154 HT PE 8 144 ITI 3059 3 19 11 114 114 31 11 190 214 190 16 112 LIT HE CI SIST LOW HITE CHE LE ME 104 CH PIE IME LON EN IN BIL HI 144 CHI 1111 1 1 TH TIR 11 111 PIR PII LE! TEL 14 S 81 340 NE -171 w 111 ! NO 205 TAE CHI 105 114 1. 1,4 101 16 1 192 136 14 1 141 M M 2018 21 UM 202 TH IN IRC 11 1494 514 11 190 29 72 14 201 211 213 TI 18 1 13 11 55 113 12 .14 11 25 202 STA 140 11 91 23 1 241 IV UNC VE EXHIBIT 4 Selected Quarterly Statistical Data Ree Art Numer Rene R Miks Cris esc Tag rado Mike VWM La Face ARE ple P Miles mi Tuta Opus OPERA TON OS $ CE 1 13 2 ES WIS US! HE 22 41 TOT TY BI ME TIME ONCE ISCE SIT 144 23 TIRA IN 4 213 UN LA EFT VI 17.11 SH 16 23 24 14 H1 19 133 14 119 SEIS NIS MI 1. 10 EN 2 BIH W NE n 15 TO 135 1 IN 13 183 INS N 11 TH 184 140 TV 140 132 154 150 19 19 18 185 14 JOE 1 1 LAN PI IL 11 w 23 732 133 33.0 343 30 NTS BINA 316 LI 13 137 SAN 399 10 18 2000 2013 WIE SAT BI SEM TI T3 1 TI TI MEN PRE 9 MAS MES MM MM CH! TE TE RE THE THE TITE FORE FRE . 27 IND TIT M WE LG SEITE SY S ST 2 WS L 1715 1 SR W WS W SIA SIGN SIN SIN DIRN SIS HE 125 0 TW Toid TIP ALT M + DHT 2 INTE WIT IT WE BE RE 10 TA TOT IS NA 3347 13 13 28 NA TH TE 185 1814 w 1874 CHE E E 20 31 3121.00 37 252 340 338 38.4 14 3121 SIM SIN SI SAN SIS SIN SI SA! Sie I . WE e SE TS FET E 1914 IN 2.1 ET T SI SI 4 18 2.31 JO fr To 16 16 319 SI SI SET TET HIS SIS ST 1818 1873 181 1873 SI SI 23 INTE NE 22 344 LA 2013 SI SI THE 18 BI IMA M 19 E ME 1 ENTO 171 247 245 MERIS ws 38 SI D19 13 1416 1431 149 105 150 148 1:48 FH 31 19 139 1 13 16 1121 1. LAN LE 15 NIS IS THIS WYPIS 251 10 VE NE HE SU 216 211 M SITES SI SI SIM ET SES TI MY 155 141 2431 IVES AIS TS wa ATES Selected Quarterly Financial Data, Panel A: 1993-1998 Consolidated Statement of Income Operating Expenses 1 RE Www KAI WA WE CHT Operating Revenues In 59937 1,500 TH 195 117 ST 1.05 2010 1 61 3.3.1 g 1,161 Series 20 Sed 22 11 AR 1.14 Howed 247 14 1 C Ale w 116 and 40 114 M 1 Malta an where TO TI 2.10 2 Restaurang fee LIST Riga 19 27 BITE COM ILMI E 114 M WR 23 Lase es TA 1994 T. TI 14 STUS 165 77 104 TE 3 10 10 14 PI IL 104 M 41 15 TETT PTS ISO 11 1 TE TI M DU 11 IM Car 1 1 TI . 3335 4 LOH 19 5 1 V W PE M To 1996 1991 1997 TI 1993 1973 LIN 141 TIS 514 1.10 1.118 11:29 ! 554 29 201 117 174 191 19 W 7 114 1920 1 211 SE350 11414 111 177 1 190 112 1122 1.1 MS 1195 LS 2133 II 161 110 141 IN IN 17 197 13 1. LIN 1. I 1961 BIN 18 11 13 224 29 25 WWE IRI 114 201 213 14 IR 11 . 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NO 205 TAE CHI 105 114 1. 1,4 101 16 1 192 136 14 1 141 M M 2018 21 UM 202 TH IN IRC 11 1494 514 11 190 29 72 14 201 211 213 TI 18 1 13 11 55 113 12 .14 11 25 202 STA 140 11 91 23 1 241 IV UNC VE MC T15 is 19 ELIT 10 RE TAT LET 7131 7333 7231 33 IT 11004 1 134 220) 112 TES 2 LT65 A 1018 XIY HUIS TO 1.09 13 L.TO 16 15 $125 31161) 5121 311 OF THIS IS SIS MES HIS 100 THE IM TR17 161 114713 221167 14 114 LIE INT 10:30 1131 310) 500 911 17 't 2 11 18 1. 4 011 16 CE TIT 605 16111 OSW 041 05 1911 2.1 1 Udl CIT BE 2.1 2.1 1 175 193 IT! 1131 14 10 LAT 981 76.11 LE 04 13. 0101 CORONE TORTOINT #HHE Y No coraz HOT FI FOI DET Trito TETT 0 CONT ** Low DO . COM W TO FOM POR LE FOR PRE LOW ht LET LISIS OF o't PIE 111016 2. * www Fur VE HIS TIS 20 FIE 11 20 11 12 3311 SIME 016710 110) 1111 31201 SIT RIS LES 16 TIL THE LIT M. + 19 113 11330 SUES EPE THIS 7511 SOLIS LYSIS il WIE HE FIRE HE I 11 141 16! IT 11 ASIS E LI TH 14 TE IP INTONE FIT HE 11 1 11 FI FM LINE * CHE HES GE #! 133 118 rouri ST HEHE HET SE WITH HE TAN HEN EDISI Del Set De W Die A EXT wa ATES Selected Quarterly Financial Data, Panel A: 1993-1998 Consolidated Statement of Income Operating Expenses 1 RE Www KAI WA WE CHT Operating Revenues In 59937 1,500 TH 195 117 ST 1.05 2010 1 61 3.3.1 g 1,161 Series 20 Sed 22 11 AR 1.14 Howed 247 14 1 C Ale w 116 and 40 114 M 1 Malta an where TO TI 2.10 2 Restaurang fee LIST Riga 19 27 BITE COM ILMI E 114 M WR 23 Lase es TA 1994 T. TI 14 STUS 165 77 104 TE 3 10 10 14 PI IL 104 M 41 15 TETT PTS ISO 11 1 TE TI M DU 11 IM Car 1 1 TI . 3335 4 LOH 19 5 1 V W PE M To 1996 1991 1997 TI 1993 1973 LIN 141 TIS 514 1.10 1.118 11:29 ! 554 29 201 117 174 191 19 W 7 114 1920 1 211 SE350 11414 111 177 1 190 112 1122 1.1 MS 1195 LS 2133 II 161 110 141 IN IN 17 197 13 1. LIN 1. I 1961 BIN 18 11 13 224 29 25 WWE IRI 114 201 213 14 IR 11 . WE 1 14 RIE 137 119 134 41 13 HO 3553 3153 PIMI 11 1144 T! 19 PRI 115 LIET WE 155 ME 230 201 1 17 1 18 17 MOS 114 18 1 10 IN IRE 14 SE 15 114 w WE War CIC WI 2 ! M S 14 10 151 11 21 194 MI CE! SP LE 2.72 18 SE 215 22 21 205 ONE LOTT ve LAN 1.314 1914 136 119 1911 12 13 IT T. STI 3000 11 TA TO TI NI 2011 2011 TI WE 14 154 HT PE 8 144 ITI 3059 3 19 11 114 114 31 11 190 214 190 16 112 LIT HE CI SIST LOW HITE CHE LE ME 104 CH PIE IME LON EN IN BIL HI 144 CHI 1111 1 1 TH TIR 11 111 PIR PII LE! TEL 14 S 81 340 NE -171 w 111 ! NO 205 TAE CHI 105 114 1. 1,4 101 16 1 192 136 14 1 141 M M 2018 21 UM 202 TH IN IRC 11 1494 514 11 190 29 72 14 201 211 213 TI 18 1 13 11 55 113 12 .14 11 25 202 STA 140 11 91 23 1 241 IV UNC VE EXHIBIT 4 Selected Quarterly Statistical Data Ree Art Numer Rene R Miks Cris esc Tag rado Mike VWM La Face ARE ple P Miles mi Tuta Opus OPERA TON OS $ CE 1 13 2 ES WIS US! HE 22 41 TOT TY BI ME TIME ONCE ISCE SIT 144 23 TIRA IN 4 213 UN LA EFT VI 17.11 SH 16 23 24 14 H1 19 133 14 119 SEIS NIS MI 1. 10 EN 2 BIH W NE n 15 TO 135 1 IN 13 183 INS N 11 TH 184 140 TV 140 132 154 150 19 19 18 185 14 JOE 1 1 LAN PI IL 11 w 23 732 133 33.0 343 30 NTS BINA 316 LI 13 137 SAN 399 10 18 2000 2013 WIE SAT BI SEM TI T3 1 TI TI MEN PRE 9 MAS MES MM MM CH! TE TE RE THE THE TITE FORE FRE . 27 IND TIT M WE LG SEITE SY S ST 2 WS L 1715 1 SR W WS W SIA SIGN SIN SIN DIRN SIS HE 125 0 TW Toid TIP ALT M + DHT 2 INTE WIT IT WE BE RE 10 TA TOT IS NA 3347 13 13 28 NA TH TE 185 1814 w 1874 CHE E E 20 31 3121.00 37 252 340 338 38.4 14 3121 SIM SIN SI SAN SIS SIN SI SA! Sie I . WE e SE TS FET E 1914 IN 2.1 ET T SI SI 4 18 2.31 JO fr To 16 16 319 SI SI SET TET HIS SIS ST 1818 1873 181 1873 SI SI 23 INTE NE 22 344 LA 2013 SI SI THE 18 BI IMA M 19 E ME 1 ENTO 171 247 245 MERIS ws 38 SI D19 13 1416 1431 149 105 150 148 1:48 FH 31 19 139 1 13 16 1121 1. LAN LE 15 NIS IS THIS WYPIS 251 10 VE NE HE SU 216 211 M SITES SI SI SIM ET SES TI MY 155 141 2431 IVES AIS TS wa ATES Selected Quarterly Financial Data, Panel A: 1993-1998 Consolidated Statement of Income Operating Expenses 1 RE Www KAI WA WE CHT Operating Revenues In 59937 1,500 TH 195 117 ST 1.05 2010 1 61 3.3.1 g 1,161 Series 20 Sed 22 11 AR 1.14 Howed 247 14 1 C Ale w 116 and 40 114 M 1 Malta an where TO TI 2.10 2 Restaurang fee LIST Riga 19 27 BITE COM ILMI E 114 M WR 23 Lase es TA 1994 T. TI 14 STUS 165 77 104 TE 3 10 10 14 PI IL 104 M 41 15 TETT PTS ISO 11 1 TE TI M DU 11 IM Car 1 1 TI . 3335 4 LOH 19 5 1 V W PE M To 1996 1991 1997 TI 1993 1973 LIN 141 TIS 514 1.10 1.118 11:29 ! 554 29 201 117 174 191 19 W 7 114 1920 1 211 SE350 11414 111 177 1 190 112 1122 1.1 MS 1195 LS 2133 II 161 110 141 IN IN 17 197 13 1. LIN 1. I 1961 BIN 18 11 13 224 29 25 WWE IRI 114 201 213 14 IR 11 . WE 1 14 RIE 137 119 134 41 13 HO 3553 3153 PIMI 11 1144 T! 19 PRI 115 LIET WE 155 ME 230 201 1 17 1 18 17 MOS 114 18 1 10 IN IRE 14 SE 15 114 w WE War CIC WI 2 ! M S 14 10 151 11 21 194 MI CE! SP LE 2.72 18 SE 215 22 21 205 ONE LOTT ve LAN 1.314 1914 136 119 1911 12 13 IT T. STI 3000 11 TA TO TI NI 2011 2011 TI WE 14 154 HT PE 8 144 ITI 3059 3 19 11 114 114 31 11 190 214 190 16 112 LIT HE CI SIST LOW HITE CHE LE ME 104 CH PIE IME LON EN IN BIL HI 144 CHI 1111 1 1 TH TIR 11 111 PIR PII LE! TEL 14 S 81 340 NE -171 w 111 ! NO 205 TAE CHI 105 114 1. 1,4 101 16 1 192 136 14 1 141 M M 2018 21 UM 202 TH IN IRC 11 1494 514 11 190 29 72 14 201 211 213 TI 18 1 13 11 55 113 12 .14 11 25 202 STA 140 11 91 23 1 241 IV UNC VE MC T15 is 19 ELIT 10 RE TAT LET 7131 7333 7231 33 IT 11004 1 134 220) 112 TES 2 LT65 A 1018 XIY HUIS TO 1.09 13 L.TO 16 15 $125 31161) 5121 311 OF THIS IS SIS MES HIS 100 THE IM TR17 161 114713 221167 14 114 LIE INT 10:30 1131 310) 500 911 17 't 2 11 18 1. 4 011 16 CE TIT 605 16111 OSW 041 05 1911 2.1 1 Udl CIT BE 2.1 2.1 1 175 193 IT! 1131 14 10 LAT 981 76.11 LE 04 13. 0101 CORONE TORTOINT #HHE Y No coraz HOT FI FOI DET Trito TETT 0 CONT ** Low DO . COM W TO FOM POR LE FOR PRE LOW ht LET LISIS OF o't PIE 111016 2. * www Fur VE HIS TIS 20 FIE 11 20 11 12 3311 SIME 016710 110) 1111 31201 SIT RIS LES 16 TIL THE LIT M. + 19 113 11330 SUES EPE THIS 7511 SOLIS LYSIS il WIE HE FIRE HE I 11 141 16! IT 11 ASIS E LI TH 14 TE IP INTONE FIT HE 11 1 11 FI FM LINE * CHE HES GE #! 133 118 rouri ST HEHE HET SE WITH HE TAN HEN EDISI Del Set De W Die A EXT
