Chapter 3, Problem 48E

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

Chapter
Section

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
42 views

Use the following information for Exercises 3-47 and 3-48: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:Exercises 3-48 Changing the Cost Formula for a Month to the Cost Formula for a YearRefer to the information for Fly High Airlines above.Required: 1. Develop annual cost formulas for airplane depreciation, fuel, and airplane maintenance. 2. Using the three annual cost formulas that you developed, predict the cost of each resource in a year with 480,000 airline flight hours.

1.

To determine

Prepare the annual cost formula for airplane depreciation, fuel and airplane maintenance.

Explanation

High Low Method:

The method in which, high and low points of data are used to classify the mixed cost into fixed and variable cost known as high low method. This is one among the three costs of separation methods.

The cost formula for airplane depreciation is,

Total Cost=Fixed Cost×12 months

Substitute $18,000,000 for fixed cost in the above formula. Total Cost=$18,000,000×12 months=$216,000,000 The cost formula for fuel is, Total Cost=Variable Rate×Annual Number Of Airplane Flight Hours Substitute$10,134 for variable rate in the above formula

2.

To determine

Calculate the total cost of each resource when the number of airplane flight hours is 480,000 hours.

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