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 fight hours is the driver. The total costs of the three resources and the related number of airplane flight hours are as follows: Airplane Flight Resource Hours Total Cost Airplane depreciation: High 44,000 25,000 $18,500,000 $18,500,000 Fuel: High 44,000 28,000 445,896,000 283,752,000 Low Airplane maintenance High 44,000 28.000 16,160,000 11,364,000 LOW 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 XXS Develop an annual cost formula fortul Total cost of the Annual number of airplane flight hours

Answer 1

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 depreciation

Change in total cost= $16160000-11864000= $4296000

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

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

= $4296000/16000= $269 per flight hour

Fixed cost= Total cost-Variable cost

= $16160000-(44000*$269)= $4324000

Total annual cost of airplane maintenance= (12*$4324000)+($269*Annual number of airplane flight hours)

2)

Total annual cost of airplane depreciation (12*$18500000)	$222000000
Total annual cost of fuel ($10134*487000)	$4935258000
Total annual cost of airplane maintenance (12*$4324000+$269*487000)	$182891000