Question

Cost Patterns The graphs below represent approximations of cost behavior patterns. The horizontal axis of each graph represents units and the vertical axis represents dollars of total cost. Select the graph that best matches each of the situations described below. Each graph may be selected more than once (Select the appropriate graph by using the drop-down answer box found at the end of each situation.) a. Straight-line depreciation of a factory building.* b. Utility bill for electricity that includes a fixed charge per month plus a constant usage rate per hour for hours in excess of 100 Cost of microchip incorporated into a product. d. Labor cost of machine operators who become more productive as they gain experience. e. Water bill that includes a flat fee for the first 10,000 gallons used plus an increasing usage charge for each additional 10,000 gallons used. f. Cost of factory supplies when increasing quantities bring cost discounts as each price break level is attained. g. Salaries of quality inspectors when one additional inspector is hired for each 20,000 units produced. h. Cost of an advertising campaign.

Answer 1

Stituation Graph Reason Depreciation cost will remain constant Ja. Straight-line depreciation of a factory building. irrespective of the change in volume. Utility bill for electricity that includes a fixed Initially the cost would remain constant (fixed | charge per month plus a constant usage rate per charge) and then the cost will increase with the b. hour for hours in excess of 100 per hour usage. It is a variable cost, it will increase with the c. Cost of microchip incorporated into a product. each unit produced. Labor cost of machine operators who become As the labor become more productive, the cost | d. more productive as they gain experience. will start increaseing at decreasing rate. Cost will remain constant till 10,000 gallons and then starts increasing with each gallon Water bill that includes a flat fee for the first used for next 10,000 gallons, then again it 10,000 gallons used plus an increasing usage starts increasing at increased rate for next charge for each additional 10,000 gallons used. 10,000 gallon used. Cost of factory supplies when increasing quantities Since increasing quantities bring cost bring cost discounts as each price break level is discounts as each price break level is attained, f. attained. cost will decrease after very breal level. Salaries of quality inspectors when one additional g. inspector is hired for each 20,000 units produced. It is an example of step-cost function. Advertising costs will remain constant h. Cost of an advertising campaign. irrespective of the change in volume. I e. D E