Write a Linear Cost Function Equation for Each of the Following

question 23

Essay

Write a linear cost function equation for each of the following conditions. Use y for estimated costs and X for activity of the cost driver.
a. Direct manufacturing labor is $20 per hour.
b. Direct materials cost $18.40 per cubic yard.
c. Utilities have a minimum charge of $2,000, plus a charge of $0.10 per kilowatt-hour.
d. Machine operating costs include $400,000 of machine depreciation per year, plus $150 of utility costs for each day the machinery is in operation.

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Definitions:

Efficient Frontier

A concept in modern portfolio theory representing a set of optimal investment portfolios that offer the highest expected return for a defined level of risk or the lowest risk for a given level of expected return.

Capital Asset Pricing Model

A model that describes the relationship between systemic risk and expected return for assets, particularly stocks, used to calculate a theoretically appropriate required rate of return for an asset, given its non-diversifiable risk.

Expected Rate

The anticipated return on an investment based on historical averages, interest rates, or economic indicators.

Illiquidity Premiums

Additional return expected by investors for holding assets that are difficult to trade quickly without significant price concessions.