Suppose you have been asked to advise for Alisha Incorporated, a company that manufactures medical stents for use in heart bypass surgery on the two scenarios described below. Based upon 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

(This assignment is derived from Exercises 3-37 and 3-38 at the end of Chapter 3.)

Note: Round all percentages to one decimal place.

Scenario 1:

Last year, Alisha produced 50,000 stents. Actual maintenance costs for the year were as expected. Provide the following information:

• Calculate the total maintenance cost incurred by Alisha last year.
• Identify the total fixed maintenance cost incurred by Alisha last year.
• Calculate the total variable maintenance cost incurred by Alisha last year.
• Calculate the maintenance cost per unit produced (total maintenance cost/units produced).
• Calculate the fixed maintenance cost per unit (total fixed cost/units produced).
• Calculate the variable maintenance cost per unit (total variable cost/units produced).
• Now, briefly explain how Alisha management could improve its cost function so that they understand past maintenance costs better and can more accurately predict future maintenance costs.

Scenario 2:

Now assume that Alisha produced 25,000 medical stents (rather than 50,000).

• Calculate the total maintenance cost incurred by Alisha last year.
• Identify the total fixed maintenance cost incurred by Alisha last year.
• Calculate the total variable maintenance cost incurred by Alisha last year.
• Calculate the maintenance cost per unit produced (total maintenance cost/units produced).
• Calculate the fixed maintenance cost per unit (total fixed cost/units produced).
• Calculate the variable maintenance cost per unit (total variable cost/units produced).
• Now, briefly explain why Alishas maintenance cost per unit in this scenario is different from the previous scenario.
• Explain whether or not Alishas management should use maintenance costs per unit to make decisions. Defend your answer.