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Deltas New Song Case Study

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Submitted By 42bball4242
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Pages 3
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 Salary Cost(High-1,607, Low1,037) :(2,369-1,580)/(1,607-1,037)= 789/570=1.384
I selected this driver because the revenue directly correlates to the price you could pay your employees and still turn a profit. Delta can use this to see that they are making a profit when looking at just the salary cost and the revenue they bring in. The advantages of this technique are you have concrete evidence when and if employees ask how much they are getting paid and why and the disadvantages are that the revenue Ton Miles can fluctuate over the course of a year and make it hard to base the decision of salaries on just one variable.

2.Use simple regression to estimate the salary cost function for Delta Airlines. Comment on the statistical validity and significance of your results. What are the advantages of this technique? What are the disadvantages? Is this technique an improvement from the High-Low Method? Revenue Ton Miles and Salary Cost, Y=.3301X+614.33 with its R^2=.1378 This was not the best variable to use considering that the R square for the “Available Ton Mile” is much smaller equaling .5577 this means that the correlation

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