Question

Runaround Corporation sells running shoes and during January they ran production machines for 22,000 hours total and incurred $10,000 in maintenance costs. During July they ran production machines for 11,000 hours total and incurred $6,800 in maintenance costs. Based on this​ data, what are the fixed​ costs?

Answer 1

Runaround Corporation is dealing with both fixed expenses and variable expenses. The variable expenses change, and it depends on the number of hours the machines will run. On the contrary, fixed expenses are fixed, and such expenses do not depend on the machines or the number of shoes delivered.

Step-by-step explanation:

The maintenance cost of 10,000$ incurred after running the machine for 22,000 hours and maintenance cost includes both fixed expenses and variable expenses. We put this into an equation as follows:

22,000h + f = 10,000$ (A)

Similarly, the maintenance cost of 6,800$ incurred after running the machine for 11,000 hours and maintenance cost includes both fixed expenses and variable expenses. We put this into an equation as follows:

11,000h + f = 6,800$ (B)

From equation (A) and (B)

(22,000h +f) – (11,000h+f) = 10000$ - 6800$

11,000h= 3,200$

H= 0.3

Putting the value of hours in equation (A), to obtain fixed cost of Runaround Corporation

22000(0.3) + f = 10000

6380 + f= 10000

F= 3,400 $

The fixed cost of Runaround Corporation is 3,400$