Question

An analysis of past maintenance costs indicates that maintenance cost is an average of $0.20 per machine-hour at an activity level of 10,000 machine-hours and $0.25 per machine-hour at an activity level of 8,000 machine-hours. If this activity is within the relevant range, what is the total expected maintenance cost if the activity level is 8,700 machine-hours?

Answer 1

Answer: $2000

Step-by-step explanation:

Variable cost = Change in cost ÷ Activity change

($2000 - $2000) ÷ (10000 - 8000) = $0

Fixed cost element = Final cost - Variable cost

$2000 - ($0.00 ×10000) = $2000

Therefore, the cost formula for total maintenance is $2000 plus $0 per hour

y = $2,000 + $0x

At a level of 8,700 machine-hours, the total cost is:

y = $2000 + ($0.00 ×8700) = $2000