Question

Changing the Cost Formula for a Month to the Cost Formula for a Year

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			$ 18,500,000
Low	28,000			$ 18,500,000
Fuel:
High	44,000			445,896,000
Low	28,000			283,752,000
Airplane maintenance:
High	44,000			16,272,000
Low	28,000			12,256,000

Required:

If required, round calculations and answers to nearest dollar.

1. Develop an annual cost formula for airplane depreciation.

Total annual cost of airplane depreciation =  x ( $ )

Develop an annual cost formula for fuel.

Total annual cost of fuel = $ ×  

Develop an annual cost formula for airplane maintenance.

Total annual cost of airplane maintenance = ( x $ ) + ( $ ×   )

2. Using the three annual cost formulas that you developed, predict the cost of each resource in a year with 484,000 airplane flight hours.

Total annual cost of airplane depreciation	$
Total annual cost of fuel	$
Total annual cost of airplane maintenance	$

Answer 1

Answer 1

Develop an annual cost formula for airplane depreciation

Airplane depreciation is a fixed costs as the airplane depreciation remains same irrespective of the change in airplane flight hours.

Total annual cost of airplane depreciation = 12 * 18500000

Develop an annual cost formula for fuel

Fuel variable cost = 445896000 / 44000 = 10134 per flight hour

Total annual cost of fuel = 10134 * Annual number of airplane flight hours

Develop an annual cost formula for airplane maintenance

Change in total cost = 16272000 - 12256000 = 4016000

Change in airplane flight hours = 44000 - 28000 = 16000 hours

Variable cost per unit = Change in total cost / Change in airplane flight hours

= 4016000 / 16000 = 251 per flight hour

Fixed cost = Total cost - variable cost

= 16272000 - (44000 * 251) = 5228000

Total annual cost of airplane maintenance = (12 * 5228000) + (251 * Annual number of airplane flight hours)

Answer 2

Total annual cost of airplane depreciation (12 * 18500000)	222000000
Total annual cost of fuel (10134 * 484000)	4904856000
Total annual cost of airplane maintenance (12 * 5228000) + (251 * 484000)	184220000

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