Question

Runaround Corporation sells running shoes and during January they ran production machines for 29,000 hours total and incurred $11,000 in maintenance costs. During July they ran production machines for 10,000 hours total and incurred $8,800 in maintenance costs. Based on this data, what are the fixed costs? (Round intermediary calculations to the nearest cent.)

A. $24,480
B. $11,000
C. $8,800 D. $7,520

Answer 1

fixed cost = $7520

so correct option is D. $7,520

Step-by-step explanation:

given data

January production = 29,000 hours

maintenance costs = $11,000

July production = 10,000 hours

maintenance costs = $8,800

to find out

what are the fixed costs

solution

we get here first variable cost that is express as

Variable cost per hour =
`(maintenance1-maintenance2)/(production\ January-production\ JUly)`

Variable cost per hour =
`(11000-8800)/(29000-10000)`

Variable cost per hour = $0.12

so fixed cost will be

fixed cost = maintenance costs - January production × Variable cost per hour

fixed cost = $11000 - ( $29000 × $0.12 )

fixed cost = $7520

so correct option is D. $7,520