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 Fuel:

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.

. What is the variable rate for airplane depreciation? The fixed cost?

. What is the cost formula for airplane depreciation?

. What is the variable rate for fuel? The fixed cost?

. What is the cost formula for fuel?

. What is the variable rate for airplane maintenance? The fixed cost?

. What is the cost formula for airplane maintenance?

. Using the three cost formulas that you developed, predict the cost of each resource in a month with 36,000 airplane flight hours.

Exercise