You Work for a Company That Manufactures Computer Chips

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.