Hook Company Wants to Develop a Cost Estimating Equation for Its

question 42

Multiple Choice

Hook Company wants to develop a cost estimating equation for its monthly cost of electricity. It has the following data: $$\begin{array} { c c c } \text { Month } & \text { Cost of Electricity } & \text { Direct labour Hours } \\\text { January } & £ 8,100 & 750 \\\text { April } & 9,000 & 850 \\\text { July } & 10,200 & 1,000 \\\text { October } & 8,700 & 800\end{array}$$ Using the high-low method, which of the following is the best equation?

• A)Y = £900 + £12.00X
• B)Y = £900 + £8.40X
• C)Y = £1,800 + £8.40X
• D)Y = £2,400 + £8.40X

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Definitions:

Lessor's Implicit Rate

The interest rate a lessor effectively charges a lessee in a lease agreement, often used to calculate the present value of minimum lease payments.

Incremental Borrowing Rate

The interest rate a company would have to pay if it borrows funds to finance a lease or purchase of an asset.

Discount

A reduction from the usual cost of something, often applied to incentivize purchase.

Minimum Lease Payments

The least amount over the leasing term that the lessee is obligated to pay, and which may include a residual value guarantee, taxes, fees, and interest expense.