Deltas New Song Case Study

670 Words Feb 17th, 2015 3 Pages
Lance Welsh

Case 1 (Delta’s New Song)

Accounting 581

Professor Thornock

Case Study Questions

1. Q. Identify several possible drivers of salary costs for use in estimating a salary cost function. Using one of these cost drivers, apply the High-Low technique to estimate the salary cost function for the Delta Airlines. What driver did you select and why? How would Delta use this function to forecast costs? What are the advantages of this technique? The disadvantages?
A. Some of the possible drivers of salary cost are Number or Departures, Revenue Ton Miles, Revenue Miles scheduled, Revenue passenger miles and there are countless more you could use.

High low method for revenue Ton Miles (High-2,369, low-1,580) by
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Again, this method only uses one variable but shows us the best variable to use. If we use multiple regression models we would be able to get a more accurate result.
3.The three drivers I chose were 1.) available Ton miles 2.) Number of Departures 3.)Revenue Passengers Miles
These three drivers had the best R square values and that is why I chose them. This method is a considerable upgrade from all of the other methods and gives us the best available outcome. This outcome takes multiple variables and combines them into one equation. The multiple regressions R square(.8615) is higher than the single regression so there is some conflict with the method.

4. For the questions 1-3 we found out a couple different cost functions that could be useful for Delta when predicting salaries for 2003 and 2004. The multiple regressions may be most reliable considering it uses multiple variables, but the single R square is better than multiple regressions.

5. I used the Average Ton Miles as well for Jet Blue because it had the lowest R square for the previous example. (202,610-60,246)/(49-16)=142,364,000/33,000,000= 4.314. This doesn’t tell us a lot in direct correlation because it only takes one variable and it takes the two extremes of that variable. 6. I think It reasonable to assume that Delta can expect right around 24(number in thousands) for revenue passengers emplaned in the

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