variable cost is a cost that varies in direct portion with change in output Thus it remains constant in per unit but varies in totality as total output changes.
Fixed cost remains constant and does not changes with change in output .Thus it varies in per unit but remains constant in totality .
Cost that is neither constant in per unit nor totality is considered as mixed cost.
3)Fuel :
Activity | Cost | cost per flight hours |
At44000 | 445896000 | 445896000/ 44000 = $ 10134 per hour |
At 28000 | 283752000 | 283752000/28000 =$ 10134 per hour |
since Fuel cost remains constant in per unit (which is hour) ,it is purely a variable cost in nature
4)Since all of the fuel cost is variable thus Fixed cost = 0
5)
Activity | cost | Activity |
At 44000 | 16416000 | 44000 |
At 28000 | 12288000 | 28000 |
Change | 4128000 | 16000 |
variable cost for airplane maintenance =Change in cost /Change in activity
= 4128000/16000
= $ 258 per flight hours
Fixed cost:
Activity | Total cost | - | variable cost | = | Fixed cost |
At 44000 | 16416000 | 44000*258= 11352000 | 5064000 | ||
At 28000 | 12288000 | 28000*258=7224000 | 5064000 |
6)
Total cost for airplane maintenance = 5064000+(258 *Number of airplane flight hours )
7)
Total cost for airplane maintenance = 5064000+(258*36000)
= 5064000+ 9288000
= $ 14352000
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