Figure 3-1 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.
See Figure 3-1. Develop a cost equation for the total machine maintenance cost.
A) Y= $275,000
B) Y = $20,000
C) Y = $20,000 + $2 MHR
D) Y = $2 MHR

Question

Quizplus · Accepted Answer

The total machine maintenance cost is made up of two components: depreciation and operating cost. The depreciation cost is given as $20,000 per year, which is a fixed cost. The operating cost is given as $2 per machine hour, which is a variable cost. Therefore, the cost equation for the total machine maintenance cost is Y = $20,000 + $2 MHR, where Y represents the cost, and MHR represents the number of machine hours used. Hence, the best choice is C.

Figure 3-1 Sonor Systems Undertakes Its Own Machine Maintenance