Health Source Hospital (HSH) has a standing contract with an air charter service to deliver critical medications throughout its service network. The contract calls for a fixed monthly payment plus a set of variable charges based on each flight's specific characteristics. The first table below includes information about total monthly cost and the number of flights. Below the table is a computational aid for estimating the fixed and variable cost components via the high-low method. Use the pick lists associated with each boxed area to select the high and low volumes. The remainder of the tables will automatically complete based on your selections. After correctly making each selection, the variable and fixed cost amounts will turn green. Carefully review the underlying logic of the calculations. January February March April May June July August September October November December Highest level Lowest level Difference Total cost Less: Variable cost (variable cost per flight X flights) Flights Fixed cost 7 14 11 18 21 16 8 12 6 18 15 9 Flights 21 Variable cost per flight (cost difference divided by flight difference) >>>> 6 15 HIGH 55,200 46,200 9,000 Cost 23,180 43,780 29,880 48,600 55,200 46,410 26,600 36,108 22,200 47,628 37,800 28,800 Cost 55,200 22,200 33,000 2,200 LOW 22,200 13,200 9,000

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Overheads

In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyze overhead expense as it helps the company in determining how much a company must charge for its products and services so that they can generate profit.  Overhead expenses depend upon the nature of the business operations.