Question

High-Low Method, Cost Formulas During the past year, the high and low use of three different resources for Fly High Airlines occurred in July and April. The resources are airplane depreciation, fuel, and airplane maintenance. The number of airplane flight hours is the driver. The total costs of the three resources and the related number of airplane flight hours are as follows: Resource Airplane Flight Hours Total Cost Airplane depreciation: High 44,000 $ 18,400,000 Low 28,000 $ 18,400,000 Fuel: High 44,000 445,896,000 Low 28,000 283,752,000 Airplane maintenance: High 44,000 16,544,000 Low 28,000 12,120,000 Required: Use the high-low method to answer the following questions. If an answer is zero, enter "0". If required, round your answers to nearest dollar. 1. What is the variable rate for airplane depreciation? $ per flight hour What is the fixed cost for airplane depreciation? $ 2. What is the cost formula for airplane depreciation? Total cost of airplane depreciation = $ 3. What is the variable rate for fuel? $ per flight hour What is the fixed cost for fuel? $ 4. What is the cost formula for fuel? Total cost of fuel = $ x 5. What is the variable rate for airplane maintenance? $ per flight hour What is the fixed cost for airplane maintenance? $ 6. What is the cost formula for airplane maintenance? Total cost of airplane maintenance = $ + ( $ × ) 7. Using the three cost formulas that you developed, predict the cost of each resource in a month with 36,000 airplane flight hours. (Note: Do not round intermediate calculations.) Total cost of airplane depreciation $ Total cost of fuel $ Total cost of airplane maintenance $

Answer 1

	Airplane Flight Hours	Airplane Depreciation Cost $	Fuel Cost $	Airplane Maintenance Cost $
High activity level	44000	18400000	445896000	16544000
Low activity level	28000	18400000	283752000	12120000
Change	16000	0	162144000	4424000

1	Variable rate for airplane depreciation = $0 per flight hour
	Fixed cost for airplane depreciation = $18400000
2	Cost formula for airplane depreciation: Total cost of airplane depreciation = $18400000
3	Variable rate for fuel = $162144000/16000 = $10134 per flight hour
	Fixed cost for fuel = $445896000 - ($10134 x 44000) = $445896000 - $445896000 = $0
4	Cost formula for fuel: Total cost of fuel = $10134 x Flight hours
5	Variable rate for airplane maintenance = $4424000/16000 = $276.50 per flight hour
	Fixed cost for airplane maintenance = $16544000 - ($276.50 x 44000) = $16544000 - $12166000 = $4378000
6	Cost formula for airplane maintenance: Total cost of airplane maintenance = $4378000 + ($276.50 x Flight hours)
7	Total cost of airplane depreciation = $18400000
	Total cost of fuel = $10134 x Flight hours = $10134 x 36000 = $364824000
	Total cost of airplane maintenance = $4378000 + ($276.50 x 36000) = $4378000 + $9954000 = $14332000