*y = a + bx*:

*y*is the

*dependent*variable, such as the estimated or expected

*total cost of electricity*during a month. The amount of

*y*is dependent upon the amounts of

*a*and

*bx*.

*a*is the estimated total amount of

*fixed electricity costs*during the month. It is the value of

*y*, when

*x*is zero. If the total cost line intersects the y-axis at $1,000 then it is assumed that the

*total fixed costs*for a month are $1,000.

*b*is the estimated

*variable cost per unit*of

*x*. It determines the

*slope*of the total cost line. If

*b*is $5, this means that the variable cost portion of electricity is estimated to be $5 for every unit of

*x*.

*x*is the

*independent*variable. For example,

*x*could represent the known number of machine hours used in the month.

*bx*is the

*total variable cost of electricity*. If the company's electricity cost is estimated to be $5 per unit of

*x*, and

*x*is 4,000 machine hours, then the

*total variable cost of electricity*for the month is estimated to be $20,000.

In our example the total estimated cost of electricity (

*y*) in a month when

*x*is 4,000 machine hours will be $21,000.

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