Question

What are the 2 variable costs involved in making a commercial drone? What makes them variable costs?

What are 2 fixed costs involved in making a commercial drone? What makes them fixed costs?

What is one mixed cost involved in making a commercial drone? Why is it considered to be a mixed cost?

Thinking about the mixed cost you identified, and the mixed cost function, where y = a + xb, explain how each component (y, a, x, b) relates to your mixed cost.

Again, thinking about your mixed cost, and the idea of a relevant range, identify some constraints within the production of a commercial drone that would help determine the # of units of production that represent both the minimum and maximum boundaries of your mixed cost's relevant range.

Answer 1

1) 2 variable cost in making a commercial drone are

· The main boards – which controls the functioning

· Cameras

Variable costs vary in relation in production. They are incurred only if there is production and they are constant at per unit level.

2) 2 fixed cost in making a commercial drone are

· Depreciation – Factory , Office buildings

· Insurance premiums, Rates and taxes - Factory, Office, etc

Fixed costs are indirect costs and they are not directly incurred in production and sales. They facilitate the production and sales. They are constant at overall level and change per unit level with increase or decrease in production and sales

3) Mixed cost

A mixed cost can be the cost of utilities consumed in the manufacturing like electricity.

Mixed costs are the cost which has both components of variable and fixed in it. A certain component is variable in relation to production and certain component is fixed for the facilities used in production.

4) Y = a + bx

Y = Total cost

a= Fixed cost

b = variable cost per activity level (activity level can be labor hour, machine hour, units produced)

x= activity level (For example: labor hours, machine houses, etc)

5) The mixed cost is applicable only within the relevant range of production. Beyond this range the fixed cost component of mixed cost can change depending on the level of activity. Hence fixed cost is a type of variable cost beyond the certain range of production defined for the given output. The constraints within the production of a commercial drone that would help determine # of units of production that represent both the minimum and maximum boundaries are production plan of drone, the variability and fixed nature of costs incurred, whether the cost is related in linear or non-linear way, what type of activity level drives the cost, etc.