A number of graphs displaying cost behavior pattens are shown below. The vertica

Question

A number of graphs displaying cost behavior pattens are shown below. The vertical axis on each graph represents total cost and the horizontal axis represents the level of activity (volume). 2 4 6 8 10 12 Required: For each of the following situations, identify the graph above that illustrates the cost pattern involved. A graph may be used more than once. a. Cost of raw materials used. b. Electricity bill-a fat fixed charge, plus a variable cost after a certain number of kilowatt-hours are used. c. City water bill, computed as follows: First 1,000,000 litres or less Next 10,000 litres Next 10,000 litres Next 10,000 litres $1,040 flat fee 0.009 per litre used 0.012 per litre used 0.015 per litre used d. Depreciation of equipment, where the amount is computed by the straight-line method. When the depreciation rate was established, it was anticipated that the the wear-and-tear factor factor would be greater than e. Rent on a factory building donated by the city, wherein the agreement calls for a fixed fee payment unless 360,000 labour-hours or more are worked, in which case no rent need be paid. f Salaries of maintenance workers, where one maintenance worker is needed for every 9,000 machine- hours or less (e., 0 to 9,000 machine-hours requires three maintenace worker, 9,001 to 18,000 machine-hours requires two maintenance workers, etc.). Cost of raw materials, where the cost starts at $16 per unit and then decreases by 10 cents per unit for each of the first 100 units purchased, after which it remains constant at $8 per unit. g. h. Rent on a factory building donated by the city, where the agreement calls for rent of 5140,000 less S6 for each direct labour-hour worked in excess of 200,000 hours, but a minimum rental payment of $28,000 must be paid. i. Use of a machine under a lease, where a minimum charge of $8,000 is paid for up to 800 hours of machine time. After 800 hours of machine time, an additional charge of S6 per hour is paid up to a maximum charge of $16,000 per period.

Explanation / Answer

a) cost of raw materials used is a straight line starting from zero, it rises as the amount of raw materials used rises.

Hence graph no. 3

b) graph 6

a flat rate initially then a variabole cost per kilowatt, this means initially straight line parallel to x axis, and as kilowatt rises after a certian kilowatt it rises steadily.

c) graph 11

initially flat fee, then it rises steadily after equal intervals of 10000 litres, hence graph 11

d)graph 12

since the straight line method is used, it will be straight line parallel to x axis, and later on since the absolesence factor is high the graph rises.

e) graph 4

here fixed flat rent is paid for all amount of labor hour, and after a 360000 labor hours suddenly no rent, hence graph 4.

f) graph 10

step function, ultil 9000 hours flat rate for 3 maintenance workers, then above that 2 additional workers and salary increases, then additional worker required hence step function

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