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: Airplane Flight Hours Resource Total Cost Airplane depreciation: High 44,000 20,000 $ 18,100,000 $18,100,000 Fuel: 14 000 445,896,000 263,752,000 000 Airplane maintenance 44,000 28.000 15,904,000 12,272,000 Required: Use the high-low method to answer the following questions. If an answer is zero If required, round your answers to nearest dollar 1. What is the variable rate for airplane depreciation? 12 X per fight hour What is the fixed cost for airplane depreciation? 2. What is the cost o f plane depreciation

Answer 1

Answers

• Requirement 1

Variable rate = $ 0 per flight hour
Fixed Cost = $ 18,100,000

• Requirement 2
  Total cost of airplane depreciation = $ 18,100,000
• Requirement 3

Variable rate = $ 10,134 per flight hour
Fixed Cost = $ 0

	Months	Units	Cost
High Level		44,000	$        445,896,000.00
Low Level		28,000	$        283,752,000.00
Difference		16,000	$        162,144,000.00
A	Difference in Cost		$        162,144,000.00
B	Difference in units		16,000
C = A/B	Variable cost per unit		$                10,134.000
Working		High Level	Low Level
A	Total Cost	$      445,896,000.00	$        283,752,000.00
B	Total Units	44000	28000
C	Variable cost per unit	$                 10,134.00	$                   10,134.00
D = B x C	Total Variable cost	$      445,896,000.00	$        283,752,000.00
E = A - D	Total Fixed Cost	$                                -	$                                  -

• Requirement 4
  Total cost of fuel = $ 10134 x Number of airplane flight hours.
• Requirement 5

Variable rate = $ 227 per flight hour
Fixed Cost = $ 5,916,000

	Months	Units	Cost
High Level		44,000	$          15,904,000.00
Low Level		28,000	$          12,272,000.00
Difference		16,000	$             3,632,000.00
A	Difference in Cost		$             3,632,000.00
B	Difference in units		16,000
C = A/B	Variable cost per unit		$                      227.000
Working		High Level	Low Level
A	Total Cost	$        15,904,000.00	$          12,272,000.00
B	Total Units	44000	28000
C	Variable cost per unit	$                       227.00	$                         227.00
D = B x C	Total Variable cost	$           9,988,000.00	$             6,356,000.00
E = A - D	Total Fixed Cost	$           5,916,000.00	$             5,916,000.00

• Requirement 6
  Total Cost of airplane maintenance = $ 5916000 + ($227 x number of airplane flight hours)
• Requirement 7

Total cost of airplane depreciation = $ 18,100,000
Total Cost of fuel = $ 10134 x 36000 = $ 364,824,000
Total cost of airplane maintenance = $ 5916000 + ($227 x 36000) = 5916000 + 8172000 = $ 14,088,000