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			$ 18,700,000
Low	28,000			$ 18,700,000
Fuel:
High	44,000			445,896,000
Low	28,000			283,752,000
Airplane maintenance:
High	44,000			16,560,000
Low	28,000			11,872,000

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 Number of airplane flight hours

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

Answers

1. What is the variable rate for airplane depreciation?
$ 0 per flight hour

What is the fixed cost for airplane depreciation?
$ 18,700,000

2. What is the cost formula for airplane depreciation?

Total cost of airplane depreciation = $ 18,700,000

3. What is the variable rate for fuel?
$ 10,134 per flight hour

What is the fixed cost for fuel?
$ 0

4. What is the cost formula for fuel?

Total cost of fuel = $ 10,134 x Number of airplane flight hours

--Fuel

		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	$                                -	$                                  -

5. What is the variable rate for airplane maintenance?
$ 293 per flight hour

What is the fixed cost for airplane maintenance?
$ 3,668,000

6. What is the cost formula for airplane maintenance?

Total cost of airplane maintenance = $ 3,668,000
+ ( $ 293 × no. of flight hour   )

--Airplane Maintenance

	Months	Units	Cost
High Level	Dec	44,000	$          16,560,000.00
Low Level	Jan	28,000	$          11,872,000.00
Difference		16,000	$             4,688,000.00
A	Difference in Cost		$             4,688,000.00
B	Difference in units		16,000
C = A/B	Variable cost per unit		$                      293.000
Working		High Level	Low Level
A	Total Cost	$        16,560,000.00	$          11,872,000.00
B	Total Units	44000	28000
C	Variable cost per unit	$                       293.00	$                         293.00
D = B x C	Total Variable cost	$        12,892,000.00	$             8,204,000.00
E = A - D	Total Fixed Cost	$           3,668,000.00	$             3,668,000.00

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	$ 18,700,000
Total cost of fuel (36000 x $10134)	$ 364,824,000
Total cost of airplane maintenance (3668000 + [293 x 36000])	$ 14,216,000