Figure 3-1 ALF 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.
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See Figure 3-1.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

First, calculate the total machine maintenance cost for last year with 275,000 machine hours:

Total machine maintenance cost = Depreciation + Operating cost per hour x Number of machine hours used
Total machine maintenance cost = $20,000 + $2 x 275,000
Total machine maintenance cost = $570,000

Then, calculate the total machine maintenance cost for last year with 300,000 machine hours:

Total machine maintenance cost = Depreciation + Operating cost per hour x Number of machine hours used
Total machine maintenance cost = $20,000 + $2 x 300,000
Total machine maintenance cost = $620,000

Therefore, the total machine maintenance cost for last year with 300,000 machine hours would be $620,000, which corresponds to choice B.

Figure 3-1 ALF Systems Undertakes Its Own Machine Maintenance