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.Compute the total machine maintenance cost for last year.
A) $570,000
B) $550,000
C) $420,000
D) $20,000

Question

Quizplus · Accepted Answer

The total machine maintenance cost includes both the depreciation and the operating cost. Depreciation is $20,000. Operating cost is $2 per machine hour for 275,000 machine hours, which equals $550,000. Therefore, the total cost is $20,000 + $550,000 = $570,000.

Figure 3-1 ALF Systems Undertakes Its Own Machine Maintenance