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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem

Use the following information for Exercises 3-37 and 3-38:

Alisha Incorporated manufactures medical stents for use in heart bypass surgery. Based on past experience, Alisha has found that its total maintenance costs can be represented by the following formula: Maintenance Cost = $1,750,000 + $125X, where X = Number of Heart Stents. Last year, Alisha produced 50,000 stents. Actual maintenance costs for the year were as expected. (Note: Round all answers to two decimal places.)

Cost Behavior

Refer to the information for Alisha Incorporated above.

Required:

  1. 1. What is the total maintenance cost incurred by Alisha last year?
  2. 2. What is the total fixed maintenance cost incurred by Alisha last year?
  3. 3. What is the total variable maintenance cost incurred by Alisha last year?
  4. 4. What is the maintenance cost per unit produced?
  5. 5. What is the fixed maintenance cost per unit?
  6. 6. What is the variable maintenance cost per unit?
  7. 7. CONCEPTUAL CONNECTION Briefly explain how Alisha management could improve its cost function to better understand past maintenance costs and predict future maintenance costs.

1.

To determine

Calculate the amount of total maintenance cost which is incurred by Company A.

Explanation

Cost:

Cost can be defined as the cash and cash equivalent which is incurred against the products or its related services which will benefit the organization in the future. There are two types of costs that are fixed and variable costs.

Use the following formula to calculate the value of total maintenance cost which is incurred by Company A:

Total Maintenance Cost=Fixed Cost+(Variable Rate×Number Of Heart Stents)

Substitute $1,750,000 for fixed cost, $125 for variable rate and 50,000 for number of heart stents in the above formula

2.

To determine

Calculate the amount of total fixed maintenance cost which is incurred by Company A.

3.

To determine

Calculate the amount of total variable maintenance cost incurred by Company A.

4.

To determine

Calculate the value of maintenance cost per unit produced.

5.

To determine

Calculate the value of fixed maintenance cost per unit produced.

6.

To determine

Calculate the value of variable maintenance cost per unit produced.

7.

To determine

Discuss the factors through which Company A is able to improve its cost functions for better understanding the past maintenance cost and forecast future maintenance cost.

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