Question

Select the graph that matches the numbered manufacturing cost data. Indicate by letter which of the graphs best fits each of the situations or items described. (Click to view the graphs.) The vertical axes of the graphs represent total dollars of cost, and the horizontal axes represent production output during a calendar year. In each case, the zero point of dollars and production is at the intersection of the two axes. The graphs may be used more than once. 1. Annual depreciation of equipment, where the amount of depreciation charged is computed by the machine-hours method. 2. Electricity bill - a flat fixed charge, plus a variable cost after a certain number of kilowatt-hours are used, where the quantity of kilowatt-hours used varies proportionately with quantity of production output. 3. City water bill, which is computed as follows: First 1,000,000 litres or less $1,000 flat fee Next 10,000 litres $0.003 per litre used Next 10,000 litres $0.006 per litre used Next 10,000 litres $0.009 per litre used And so on And so on The litres of water used vary proportionately with the quantity of production output. I

Answer 1

1. K would be the most appropriate graph because depreciation would be directly on the basis of units produced.

2. B is the answer because initially there will be a fixed cost after that further cost will depend on the units produced.

3. G, as initially there is a fixed charge after that costs are increasing at more fast rate than the earlier levels.

4. J, initially the cost per unit is more, after that it decreases till it becomes $9.20 therefore till that point total cost increases rapidly, after that it increases linearly as cost per unit remains same.