Your friend Sonia says pensions and 401(k)s are the best retirement options because they offer you “free money.” What does she mean by this? Does she have a good point? Why or why not?

Answers with Explanations:

1. What does she mean by this?

Sonia probably meant that the pension and 401(k) are the best retirement options because it gives the person money that is literally "free." She never considered that these plans are not really for free but are intended to fund their retirement.

2. Does she have a good point? Why or why not?

Basically, the pension and 401(k) are "not free money." So, I guess Sonia doesn't have a good point on that. The pension (occupational pension) and 401(k) are "defined-benefit plans" and "defined-contributions plans" which are deferred from tax.

This means that the person can contribute an amount of money to those plans and they can be withdrawn tax-free after retirement. This is basically, a form of savings plan for the person so it is not literally for "free."

a. Total overhead = $294,720 + $24 × machine hours

b. Total overhead = $137,040 + $0.05 × Kilowatt-hours

c. The kilowatt-hours was the best predictor for July

Explanation:

High low method is used to separate the variable cost and fixed costs elements in a Semi-Variable Cost item.

machine-hours as cost driver.

First find the 2 points : the High and the Low

High Point : March

Machine-hours  = 4,680

Total Overhead = $ 407,040

Low Point : June

Machine-hours  = 3,720

Total Overhead = $ 384,000

Next find the Difference in the overhead cost and the cost driver of the 2 points

Overheads = $23,040

Machine-hours  = 960

Find the Variable cost element

Variable cost = difference in overhead / difference in cost driver

                      = $23,040 / 960

                      = $24

Find the Fixed Cost Element.

Fixed Cost = Total Overhead - Variable Overhead

selecting the high point, this will be :

                  = $ 407,040 - (4,680 × $24)

                  = $294,720

Determine the Cost function

Total overhead = $294,720 + $24 × machine hours

machine-hours as cost driver.

First find the 2 points : the High and the Low

High Point : March

Kilowatt-hours  = 5,400,000

Total Overhead = $ 407,040

Low Point : June

Kilowatt-hours  = 4,944,000

Total Overhead = $ 384,000

Next find the Difference in the overhead cost and the cost driver of the 2 points

Overheads = $23,040

Kilowatt-hours  = 456,000

Find the Variable cost element

Variable cost = difference in overhead / difference in cost driver

                      = $23,040 / 456,000

                      = $0.05

Find the Fixed Cost Element.

Fixed Cost = Total Overhead - Variable Overhead

selecting the high point, this will be :

                  = $ 407,040 - (5,400,000 × $0.05)

                  = $137,040

Determine the Cost function

Total overhead = $137,040 + $0.05 × Kilowatt-hours

Apply the machine hours for july

Total overhead = $294,720 + $24 × machine hours

                          = $294,720 + $24 × 4,000

                          = $390,720

Apply kilowatt-hours for july

Total overhead = $137,040 + $0.05 × Kilowatt-hours

                         = $137,040 + $0.05 × 4,550,000

                         = $364,540

Conclusion :

The kilowatt-hours was the best predictor for July