Question

Alisha Incorporated manufactures medical stents for use in heart bypass surgery. Based on past experience, Alisha has found that its total maintenance costs can be represented by the following formula: Maintenance Cost = $1, 750,000 where X = Number of Heart Stents. Last year, Alisha produced 50,000 stents. Actual maintenance costs for the year were as expected. Required:

1. What is the total maintenance cost incurred by Alisha last year?
2. What is the total fixed maintenance cost incurred by Alisha last year?
3. What is the total variable maintenance cost incurred by Alisha last year?
4. What is the maintenance cost per unit produced?
5. What is the fixed maintenance cost per unit?
6. What is the variable maintenance cost per unit?

Answer 1

Explanation:

1) To get the total maintenance cost incurred by Alisha last year?

• Given Maintenance Cost = $1, 750,000 + $125X

• Where X = Number of Heart Stents

Since we are told that Last year, Alisha produced 50,000 stents ;

X = 50,000 stents

• Maintenance Cost = $1, 750,000 + $125(50,000) = $8,000,000

2) The total fixed maintenance cost incurred by Alisha last year = $1, 750,000

3) the total variable maintenance cost incurred by Alisha last year = $6,250,000

4) the maintenance cost per unit produced ?

• but maintenance cost per unit = Total maintenance cost/Number of stents produced

• = $8,000,000 / 50,000 = $160

5) the fixed maintenance cost per unit = Fixed maintenance cost/Number of stents produced

• = $1, 750,000 / 50,000 = $35

6) the variable maintenance cost per unit? = Variable maintenance cost/Number of stents produced = $6,250,000 / 50,000 = $125