Estimating Costs in an Uncertain Environment Many companies face increasingly unpredictable costs and revenues as the recession affects demand for products and the costs of materials andlabor for these products. Revenues and costs have fluctuated significantly in recent years for suchcost elements as fuel, labor, commodities (agricultural commodities, metals, etc.), interest, and rentexpense, among others. Dealing with the increased fluctuations requires cost estimation methods thatare more sophisticated and more frequently updated. The result is that companies are including intheir cost estimation additional independent variables. Moreover, these companies are updating theirestimation models more frequently. For example, Southwest Airlines updates its revenue predictionmodel on a daily basis.Required Consider Southwest Airlines and the following six key areas of cost for the company. Which ofthese costs do you think the airline must update most frequently?1. Flight crew.2. Fuel costs.3. Maintenance spending.4. Advertising spending.5. Aircraft ownership costs.
Estimating Costs in an Uncertain Environment Many companies face increasingly unpredictable costs and revenues as the recession affects demand for products and the costs of materials and
labor for these products. Revenues and costs have fluctuated significantly in recent years for such
cost elements as fuel, labor, commodities (agricultural commodities, metals, etc.), interest, and rent
expense, among others. Dealing with the increased fluctuations requires cost estimation methods that
are more sophisticated and more frequently updated. The result is that companies are including in
their cost estimation additional independent variables. Moreover, these companies are updating their
estimation models more frequently. For example, Southwest Airlines updates its revenue prediction
model on a daily basis.
Required Consider Southwest Airlines and the following six key areas of cost for the company. Which of
these costs do you think the airline must update most frequently?
1. Flight crew.
2. Fuel costs.
3. Maintenance spending.
4. Advertising spending.
5. Aircraft ownership costs.
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