The Following Six Months of Data Were Collected on Electricity

question 165

Essay

The following six months of data were collected on electricity cost and the number of machine hours in a factory.
Required:
$\begin{array}{lrr}& \text { Utility } & \text { Machine } \\\text { Month } &\text { cost }&\text { hours }\\\text { June } & \$ 25,160 & 4,500 \\\text { July } & 26,170 & 4,810 \\\text { August } & 27,250 & 5,120 \\\text { September } & 26,680 & 5,010 \\\text { October } & 27,950 & 5,430 \\\text { November } & 27,500 & 5,190\end{array}$ A. Using the high-low method, compute the variable rate for the electricity cost.
B. Using the high-low method, compute the fixed cost of electricity.
C. Estimate the total electricity cost to be incurred in December if 5,300 machine hours are incurred.

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Definitions:

Required Returns

The minimum profit or yield that investors demand for investing in an asset, considering the risk involved.

Risk Premium

The additional return an investor requires to invest in an asset over a risk-free rate, compensating for the risk of the investment.

Yield

The income return on an investment, such as the interest or dividends received, often expressed as an annual percentage based on the investment’s cost, current market value, or face value.

CAPM Approach

The Capital Asset Pricing Model, a formula used to determine the expected return on investment (ROI) by correlating the risk and expected return.