The manufacturing cost of an air-condioning unit is $544, and the full-replacement extended warranty costs $113. If the manufacturer sells 506,970 units with extended warranties and must replace 20% of them as a result, how much will the replacement costs be? (Note: Assume manufacturing costs and replacement costs are the same.)

Question

a.
$55,158,336
b.
$11,457,522
c.
$2,129,274
d.
$66,717,252

Answer 1

To determine the total replacement costs for the air-conditioning units, we first need to figure out how many units need to be replaced.

1. Calculate the number of units that need replacement:

   • Total units sold = 506,970
   • Percentage needing replacement = 20%
   • Number of units to be replaced = 20% of 506,970 \[ \text{Number of units to be replaced} = 0.20 \times 506,970 = 101,394 \]

2. Determine the replacement cost:

   • The manufacturing cost (which is also the replacement cost) of each unit = $544
   • Total replacement costs = Number of units to be replaced × Cost per unit \[ \text{Total replacement costs} = 101,394 \times 544 = 55,158,336 \]

The total replacement costs will be $55,158,336.

Thus, the correct answer is a. $55,158,336.