CONCERNS IN ACCOUNTING EDUCATION
Volume. 26, Number 1
American Accounting Association
DOI: 10. 2308/iace. 2011. 26. 1 . 181
A Case Analyze on Cost Estimation and
Proﬁtability Analysis at Ls Airlines
Francisco J. Román
ABSTRACT: The case exposes college students to the putting on regression analyses to be applied as a tool pursuant to understanding price behavior and forecasting foreseeable future costs using publicly available data coming from Continental Flight companies. Speciﬁcally, the situation focuses on the harsh ﬁnancial condition faced by Continental as a result of the recent ﬁnancial problems and the issues it encounters to remain proﬁtable. It then features the importance of reducing and controlling costs as a practical strategy to regain proﬁtability and how regression research can assist in this pursuit. Students are up coming presented with quarterly data for various categories of costs and many potential cost drivers, which they must use to perform regressions on functioning costs utilizing a variety of price drivers. They must then employ their regression results to prediction operating costs and carry out a proﬁtability analysis to project quarterly proﬁts to get the forthcoming ﬁscal yr. Finally, college students must summarize the main benefits of their research in a comunicacion addressed to Continental's managing, providing advice to restore proﬁts. In particular, the idea of mixed cost functions is usually reinforced, as is the knowledge of the steps needed to perform regression analysis in Excel, interpreting the regression output, plus the underlying standard assumptions in regression research. The case have been tested and well received in an advanced cost accounting course in fact it is suitable for both equally undergraduate and graduate learners.
Keywords: expense estimation; proﬁtability analysis; cost behavior; regression analyses; cost functions.
Info Availability: Almost all data are from community sources and they are available in hard form inside the circumstance. Data are also available in electronic contact form by the publisher upon request.
and 2008, the senior managing team for Continental Air carriers, commanded simply by Lawrence Cellarius (fruhes mittelalter), the Chief and Chief Executive Ofﬁcer, organised a special appointment to discuss the ﬁrm's latest quarterly ﬁnancial results. A bleak condition lay before them. Continental experienced incurred an operating decrease of $71 mil dollars—its second consecutive quarterly earnings de-
Francisco J. Román is an Assistant Mentor at Arizona Tech College or university. I give thanks to Kent St Pierre editor, Michael Costa, and two anonymous referees for their ideas on past versions of the case.
Editor's take note: Accepted by Kent St . Pierre
Printed Online: Feb . 2011
cline that year. Furthermore, passenger quantity was signiﬁcantly down, falling by nearly 5 percent from the prior year's quarter. Continental's senior management needed to act swiftly to reverse this trend and return to proﬁtability.
Being the fourth largest airline in the U. S. and eighth most significant in the world, Continental was perceived as one of the most efﬁciently run businesses in the airline industry. Nonetheless, 2008 helped bring unprecedented problems for Ls and the whole industry since the United States and far of the world was heading into a severe economic recession. Companies trimming deeply into their budgets for business travel, the highest yielding component of Continental's total revenue, along with a similar downward trend from the leisure and casual sector, combined to sharply reduce total income.
Concurrent with this income decline, the buying price of jet energy soared to record levels during 2008. 1 Thus, while revenue was decreasing, Continental was paying practically twice as very much in fuel costs. Strangely enough, fuel costs surpassed the ﬁrm's salaries and income as the highest cost in Continental's cost structure. This obviously had a negative effect on the bottom line, squeezing even further the already stretched proﬁt margins.
References: Datar, S., C. Horngren, G. Foster, and C. Ittner. 2008. Price Accounting: A Managerial Emphasis. 13th
edition. Englewood Coves, NJ: Prentice Hall.
Eldenburg, L., and S. Wolcott. 2005. Cost Management: Measuring, Monitoring, and Motivating Overall performance. 1st copy. New York, BIG APPLE: John Wiley and Kids.
Maynard, Meters. 2008. Big airlines in a rush go little. The New You are able to Times June 6.
Concerns in Accounting Education
American Accounting Connection
Volume 26, No . you, 2011
Copyright laws of Problems in Accounting Education is the property of yankee Accounting Affiliation and its
content material may not be copied or e-mailed to multiple sites or perhaps posted into a listserv without the copyright holder 's
communicate written agreement. However , users may printing, download, or perhaps email articles for individual work with.