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

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Question:

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

Answer:

The manufacturer sells 506,970 units or air-conditioning. The number of units to  be replaced is 20% of that. So,
506970 (0.20) = 101394 units are to be replaced
Since full-replacement extended warrant costs $113 per unit, we have:
101394 ($113) =  $11,457,522

The answer is
b. $11,457,522

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