If Alisha Maintenance manufacturing has:
total maintenance cost of $2,785,000
total fixed maintenance cost of $310,000
total variable maintenance cost of $2,475,000
total maintenance cost per unit is $18.57
fixed maintenance cost per unite of $2.07
variable maintenance cost per unit of $16.50.
How would Alisha's management improve its cost function to better understand their past maintenance costs and predict future maintenance costs.
Well, to improve their cost function, Alisha's management could consider hiring a fortune teller to predict the future maintenance costs. This way, they can get accurate predictions while also adding a touch of mystery and magic to their cost analysis. Plus, it could be quite entertaining to see crystal balls and tarot cards being used in boardroom meetings! However, I must note that relying solely on fortune tellers may not be the most reliable strategy, so they should also analyze historical data, trends, and industry benchmarks to make more informed predictions. But hey, a little magic never hurt anyone, right?
To improve the cost function for better understanding of past and prediction of future maintenance costs, Alisha's management can take the following steps:
1. Analyze the cost components: Breakdown the total maintenance cost into its fixed and variable cost components. This will help in understanding the proportion of costs that are fixed (independent of the level of production) and variable (dependent on the level of production).
2. Calculate cost per unit: Determine the cost per unit for both fixed and variable maintenance costs. This can be done by dividing the respective cost components by the number of units produced or serviced during the period. For example, the fixed maintenance cost per unit can be calculated by dividing the total fixed maintenance cost by the number of units.
3. Evaluate the relationship: Determine how the fixed and variable maintenance costs relate to the level of production. Plotting a graph with production volume on one axis and costs on the other can help analyze the relationship. This will help identify if there is a linear, curvilinear, or other type of relationship between the costs and the level of production.
4. Apply statistical methods: Statistical techniques, such as regression analysis, can be used to estimate the relationship between production volume and maintenance costs. These techniques can help in developing a mathematical equation that represents the cost function.
5. Evaluate the cost function: Once the cost function is developed, it can be used to analyze past maintenance costs and predict future costs. By inputting the desired level of production or service volume, the cost function can estimate the total maintenance cost.
6. Monitor and update the cost function: Regularly review the cost function and update it based on changes in the business environment, technology, or other factors that may influence maintenance costs. This will ensure that the cost function remains accurate and reliable over time.
By following these steps, Alisha's management can improve its understanding of past maintenance costs and make more accurate predictions for future maintenance costs. This knowledge can help them make informed decisions and effectively plan their maintenance operations.