Question

Problem 2-19

Sunland Phone Services offers a cellular phone plan for $60 per month. Under this plan, you can make an unlimited number of phone calls and talk as long as you like.

(a) Prepare a table that shows the cost per minute of airtime and the total amount of the phone bill at the following usage levels: 20 minutes, 120 minutes, 292 minutes, and 514 minutes. (Round unit costs to 2 decimal places, e.g. 52.75.)

Minutes		Cost per minute		Total Cost
20		$		$
120		$		$
292		$		$
514		$		$

(b) What type of cost behavior does Sunland’s phone plan illustrate? Why?

This is a (a) fixed cost (b)variable cost because total cost (a) increases (b) remians fixed (c) decreases while the cost per minute (a) is fixed (b)decreases (c) increases as minutes used increases.

(c) Assume that your current cell phone plan costs you $0.02 per minute. If you use 1,376 minutes of airtime per month, which plan would you prefer, $60 per month or $0.02 per minute? What if you used 3,728 minutes per month? At what level of airtime usage would you become indifferent between the two plans?

1,376 minutes		(Select one) (a)$60 per month (b)$0.02 per minute
3,728 minutes		(Select one) (a) $0.02 per minute (b) $60 per month
Indifferent at			minutes

(d) How would you decide which phone plan to buy?

You should determine which phone plan to buy based on (Select one) (a) monthly price (b) minutes used

Answer 1

Correct Answer:

Requirement 1:

A	B = C/A	C
Minutes	Cost per minute	total cost
20	$ 3.00	$ 60.00
120	$ 0.50	$ 60.00
292	$ 0.21	$ 60.00
514	$ 0.12	$ 60.00

Requirement 2:

This is a fixed cost because total cost remains fixed while the cost per minute Decreases

Requirement 3:

1376 Minutes	0.02 per minute
3728 Minutes	$ 0.02 Per minute
Indifferent at	3000 minutes

Working:

Indifferent at how many minutes = $ 60/0.02 = 3000 Minute

Requirement 4:

You should determine which phone plan to but on Minutes used.

End of answer.

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