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
|
18,000,000
|
|
Low
|
28,000
|
18,000,000
|
|
High
|
44,000
|
445,896,000
|
|
Low
|
28,000
|
283,752,000
|
|
Airplane maintenance:
|
|
|
|
High
|
44,000
|
15,792,000
|
|
Low
|
28,000
|
11,504,000
|
Required:
Use the high-low method to answer the following questions.
1. What is the variable rate for airplane depreciation? The fixed cost?
2. What is the cost formula for airplane depreciation?
3. What is the variable rate for fuel? The fixed cost?
4. What is the cost formula for fuel?
5. What is the variable rate for airplane maintenance? The fixed cost?
6. What is the cost formula for 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.