Question

Runaround Corporation sells running shoes and during January they ran production machines for 24,000 hours total and incurred $14,000

in maintenance costs. During July they ran production machines for 11,000 hours total and incurred $8,600 in maintenance costs.  

Based on this​ data, what is the cost formula for maintenance​ costs? (Round intermediary calculations to the nearest​ cent.)

A. y​ = $1.85 X​ + $37,300

B. y​ =$0.42 X​ + $3,920

C.y​ = $0.61 X​ + $14,000

D.Cannot determine from the information given.  

Answer 1

Answer:

Determination of cost formula for maintenance cost:

Assumed X is the variable cost per machine hours & y is the total maintenance cost.

Variable cost (X) = (Maintainance cost incurred for higher machine hours used - Maintainance cost incurred for lower machine hours used)/ (Highest machine hours used - Lowest machine hours used)

= ($14,000 - $8,600) / (24,000 machine hours - 11,000 machine hours)

= $5,400 / 13,000 hours

= $0.42 per machine hours.

Fixed Costs = Total maintenance cost of production - (No. of machine-hours hours used x Machine hours per unit of production)

= $14,000 - (24,000 hours x $0.42)

= $3,920

Therefore, Option (B) i.e. "y​ =$0.42 X​ + $3,920" is the correct answer.