You Work for a Company That Manufactures Computer Chips

question 43

Essay

You work for a company that manufactures computer chips. You need to develop a cost function for maintenance cost, which consists of the cost for routine maintenance and repair of machines used to manufacture the chips.
a)List the steps you would take to develop a cost function for predicting next year's maintenance cost. The maintenance department head has suggested these three possible cost drivers: machine setups, labour hours, or machine hours. Include a detailed explanation of how you would determine the best cost driver among these three.
b)You have developed the cost function and used it to develop part of next year's budget. During the first few months of the year, you find that the estimate is off by several thousand dollars. Provide reasons why this could occur.

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Definitions:

Short Run

A time period in which at least one factor of production is fixed, limiting the ability of a business to adjust fully to market changes.

Skilled Labor

Workers who possess specialized skills, training, and education that are required to perform complex tasks.

Unskilled Labor

Refers to workers who lack specialized training or qualifications, often performing manual or routine tasks.

Marginal Product

The additional output resulting from a one-unit increase in the use of a variable input, while holding all other inputs constant.