Given here are a number of graphs. (Click to view the graphs.) The horizontal ax

Question

Given here are a number of graphs. (Click to view the graphs.) The horizontal axis represents the units produced over the year and the vertical axis represents total cost or revenues. Indicate by number which graph best fits the situation or item described. Some graphs maybe used more than once; some may not apply to any of the situations. Direct material costs Supervisors' salaries for one shift and two shifts A cost-volume-profit graph Mixed costs-for example, car rental fixed charge plus a rate per mile driven Depreciation of plant, computed on a straight-line basis Data supporting the use of a variable-cost rate, such as manufacturing labor cost of $14 per unit produced Incentive bonus plan that pays managers $0.10 for every unit produced above some level of production Interest expense on $2 million borrowed at a fixed rate of interest

Explanation / Answer

(a) Direct material cost - Graph 1

(It varies directly with output & when output is 0, cost is 0)

(b) Supervisor salaries - Graph 6

(This is a fixed cost for each level of output, so is a step-up graph)

(c) CVP - Graph 9

(d) Mixed cost - Graph 2

(The fixed component is shown by vertical intercept)

(e) Straight line depreciation - Graph 8

(Annual depreciation expense is fixed)

(f) Graph 1

(g) Incentive bonus - Graph 3

(Cost is zero until a specific activity level & is upward-rising after this level)

(h) Interest expense - Graph 8

(This is a fixed cost)

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