Sonor Systems undertakes its own machine maintenance. The depreciation on the equipment is $20,000 per year and operating cost is $2 per machine hour. Last year 275,000 machine hours were used to produce 100,000 units. If 300,000 machine hours had been worked last year, what would be the total machine maintenance cost?
A)$600,000
B)$620,000
C)$420,000
D)$220,000

Question

Quizplus · Accepted Answer

Total machine maintenance cost = Depreciation + Operating cost
Depreciation = $20,000
Operating cost = $2/machine hour
Last year's machine hours = 275,000
Last year's unit produced = 100,000
Machine hours per unit = 2.75
Therefore, if 300,000 machine hours had been worked, the number of units produced would be:
300,000 / 2.75 = 109,090.91 (rounded up to 109,091)
So, the total machine maintenance cost would be:
Depreciation + (Operating cost x Machine hours) = $20,000 + ($2 x 300,000) = $620,000
Therefore, the best choice is B.

Sonor Systems Undertakes Its Own Machine Maintenance