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Quantitative Techniques for Management Applications
Assignment 1
Forecasting
The Akron Zoological Park
During the late 1980s, global changes in consumer preferences for radial tires, inflation, and changes in governmental priorities, almost resulted in the permanent closing of the Akron Children’s Zoo. Lagging attendance and a low membership level did not help matters. Faced with uncertain prospects, the city of Akron opted out of the zoo business. In response, the Akron Zoological Park was organized as a corporation to operate the zoo under contract with the city.
Annual Attendance at the Akron Zoological Park
Admission Fee ($) | ||||
Year | Total Persons | Adult | Child | Group |
1998 | 117,874 | 4.00 | 2.50 | 1.50 |
1997 | 125,363 | 3.00 | 2.00 | 1.00 |
1996 | 126,853 | 3.00 | 2.00 | 1.50 |
1995 | 108,363 | 2.50 | 1.50 | 1.00 |
1994 | 133,762 | 2.50 | 1.50 | 1.00 |
1993 | 95,504 | 2.00 | 1.00 | .50 |
1992 | 63,034 | 1.50 | .75 | .50 |
1991 | 63,853 | 1.50 | .75 | .50 |
1990 | 61,417 | 1.50 | .75 | .50 |
1989 | 53,353 | 1.50 | .75 | .50 |
To be successful, the zoo must maintain its image as a quality place for its visitors to spend their time. Its animal exhibits are clean and neat. The animals, birds, and reptiles look well cared for. As resources become available for construction and continuing operations, the zoo also keeps adding new exhibits and activities. The independent organization’s efforts seem to be working, because attendance increased from 53,353 in 1989 to an all-time record of 133,762 in 1994.
Due to its northern climate, the zoo’s open season lasts from mid-April until mid-October. It reopens for 1 week at Halloween and for the month of December. Zoo attendance depends largely on the weather. For example, attendance was down during the month of December 1995, which established many local records for the coldest temperature and the most snow. Variations in weather also affect crop yields and prices of fresh animal foods, thereby influencing the costs of animal maintenance.
In normal circumstances, the zoo may be able to achieve its target goal and attract an annual attendance equal to 40% of its community. Akron has not grown appreciably during the past decade. But the zoo became known as an innovative community resource, and as indicated in the table, annual paid attendance has doubled. Approximately 35% of all visitors are adults. Children account for one half of the paid attendance. Group admissions remain a constant 15% of attendance.
The zoo does not have an advertising budget. To gain exposure in its market, it depends on public service announcements, the zoo’s public television series, and local press coverage of its activities. Many of these activities are only a few years old and are a strong reason why attendance has increased.
Although the zoo is a nonprofit organization, it must ensure that its income sources equal or exceed operating and physical plant costs. Its continued existence remains totally dependent on its ability to generate revenues while reducing its expenses.
DISCUSSION QUESTIONS
1. The president of the Akron Zoo has asked you to calculate the expected gate admittance figures and revenues for both 1999 and 2000. Would simple linear-regression analysis be the appropriate forecasting technique?
2. Besides admission price, what other factors that influence annual attendance should be considered in the forecast?
Quantitative Techniques for Management Applications
Assignment 2
The North-South Airline
In 2002, Northern Airlines* merged with Southeast Airlines to create the fourth-largest U.S. carrier. The new North-South Airline inherited both an aging fleet of Boeing 737–200 aircraft and Stephen Ruth. Ruth was a tough former secretary of the navy who stepped in as the new president and chairman of the board.
Ruth’s first concern in creating a financially solid company was maintenance costs. In the airline industry, it was commonly believed that maintenance costs rise with the age of the aircraft. Ruth quickly noticed that, historically, there had been a significant difference in reported B737–200 maintenance costs (from ATA Form 41s) both in the airframe and engine areas between Northern Airlines and Southeast Airlines, with Southeast having the newer fleet.
On November 12 2002, Ruth assigned Peg Young, Vice President for operations and maintenance, to study the issue. Specifically, Ruth wanted to know the following:
(1) Whether the average fleet age was correlated to direct airframe maintenance costs, and
(2) Whether there was a relationship between the average fleet age and direct engine maintenance costs.
Young was expected to report back with the answer, along with quantitative and graphical descriptions of the relationship, by November 26 2002.
First, Young had her staff construct the average age of Northern and Southeast B737-200 fleets, by quarter, since the introduction of the aircraft to service by each airline in late 1994 and early 1995. Each fleet’s average age was calculated by first multiplying the total number of calendar days that each aircraft had been in service at the pertinent point in time by the average daily utilization of the respective fleet to the total fleet hours flown. The total number of fleet hours flown was then divided by the number of aircraft in service at that time, giving the age of the “average” aircraft in the fleet.
The average utilization was found by taking the actual total fleet hours flown on September 30 2001, from Northern and Southeast data, and dividing it by the total days in service for all aircraft at that time. The average utilization for Southeast was 8.3 hours per day, and the average utilization for Northern was 8.7 hours per day. Because the available cost data were calculated for each yearly period ending at the end of the first quarter, the average fleet age was calculated at the same points in time.
The fleet data is shown in the following table. Airframe cost data and engine cost data are both shown paired with the average fleet age.
Northern Airlines Data South-east Airlines Data
Year | Airframe cost per aircraft | Engine Cost per aircraft | Average age hours | Airframe cost per aircraft | Engine Cost per aircraft | Average age hours |
1995 | $51.80 | $43.49 | 6512 | $13.29 | $18.86 | 5107 |
1996 | 54.92 | 38.58 | 8404 | 25.15 | 31.55 | 8145 |
1997 | 69.70 | 51.48 | 11077 | 32.18 | 40.43 | 7360 |
1998 | 68.90 | 58.72 | 11717 | 31.78 | 22.10 | 5773 |
1999 | 63.72 | 45.47 | 13275 | 25.34 | 19.69 | 7150 |
2000 | 84.73 | 50.26 | 15215 | 32.78 | 32.58 | 9364 |
2001 | 78.74 | 79.60 | 18390 | 35.56 | 38.07 | 8259 |
Dates and names of airlines and individuals have been changed in this case to maintain confidentiality. The data and issues described here are actual.
DISCUSSION QUESTION
Prepare Peg Young’s response to Stephen Ruth