Question

Cost Behavior 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 - $1,700,000+ $275X, where X - Number of Heart Stents. Last year, Alisha produced 58,000 stents. Actual maintenance costs for the year were as expected. Required: If required, round your answers to the nearest cent. 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? per unit 5. What is the fixed maintenance cost per unit? per unit 6. What is the variable maintenance cost per unit?

Answer 1

1)
Total maintenance cost incurred by Alisha last year        = $1,700,000 + $ 275X        =    $ 1,700,000 + ($ 275 x 58,000 )	$ 17,650,000
2)
Total fixed maintenance cost incurred by Alisha last year	$ 1,700,000
3)
Total Variable maintenance cost incurred by Alisha last year            = ($ 275 x 58,000 )	$ 15,950,000
4)
Maintenance cost per unit produced              = Total maintenance cost / Units Produced              = $ 17,650,000 / 58,000	$ 304.31
5)
Fixed maintenance cost per unit           = $ 1,700,000 / 82,000	$ 29.31
6)
Variable maintenance cost per unit           = $ 15,950,000 / 58,000	$ 275
7)
Alisha management could improve its cost function to better understand past maintenance costs and predict future maintenance costs by Identifying Additional Drivers of Maintenance Cost