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 = $2,125,000 + $375X, where X = Number of Heart Stents. Last year, Alisha produced 75,000 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?

$ per unit

7. Alisha management could improve its cost function to better understand past maintenance costs and predict future maintenance costs by.

Answer 1

Answer 1:

Total maintenance cost incurred by Alisha last year = $30,250,000

Workings:

Maintenance Cost = $2,125,000 + $375X, where X = Number of Heart Stents.

Last year, Alisha produced 75,000 stents

Hence:

Last year, Maintenance Cost = $2,125,000 + $375 * 75000 = $30,250,000

Answer 2:

Total fixed maintenance cost incurred by Alisha last year = $2,125,000

Answer 3:

Total variable maintenance cost incurred by Alisha last year = $28,125,000

Workings:

Total variable maintenance cost incurred = 375 * 75000 = $28,125,000

Answer 4:

Maintenance cost per unit produced = $403.33 per unit

Workings:

Maintenance cost per unit = 30250000 /75000 = 403.3333

Answer 5:

Fixed maintenance cost per unit = $28.33 per unit

Workings

Fixed maintenance cost per unit = Fixed cost / Number of units produced = $2,125,000 / 75000 = $28.3333

Answer 6:

Variable maintenance cost per unit = $375 per unit

Answer 7:

Alisha management could improve its cost function to better understand past maintenance costs and predict future maintenance costs by decreasing their fixed maintenance cost.