Question

Identify Cost Graphs The following cost graphs illustrate various types of cost behv Cost Graph w Cost Graph One 0 Total Units Produced Total Units Produced Cost Graph Three Cost Graph Four 0 Total Units Produced 0 Total Units Produced For each of the following costs, identify the cost graph that best illustrates its cost behavior as the number of units produced increases: a. Total direct materials cost b. Electricity costs of $1,000 per month plus $0.10 per kilowatt-hour c. Per-unit cost of straight-line depreciation on factory equipment d. Salary of quality control supervisor, $20,000 per month Break-Even Sales and Sales Mix for a Service Company Zero Turbulence Airline provides air transportation services between Los Angeles, California; and Kona, Hawail. A single Los Angeles to Kona round-trip flight has the following operating statistics Fuel $15,228 Flight crew salaries 11,664 Airplane depreciation 5,508 Variable cost per passenger-business class 70 Variable cost per passenger-economy class 610 Round-trip ticket price-business class Round-trip ticket price-economy class 295 It is assumed that the fuel, crew salaries, and airplane depreciation are fixed, regardless of the number of seats sold for the round-trip flight. If required round the answers to nearest whole number. a. Compute the break-even number of seats sold on a single round-trip flight for the overall product, E. Assume that the overall product is 10% business class and 90% economy class seats. seats Total number of seats at break-even b. How many business class and economy class seats would be sold at the break-even point? seats Business class seats at break-even seats Economy class seats at break-even

Answer 1

a.
Total direct materials cost = Cost Graph Four
This graph depicts a linear relationship, that is, the proportionate increase in units is equal to the proportionate increase in the costs. This is the nature of direct material cost, it increase with the increase in output

b.
Cost graph Two depicts this cost.
If you see clearly, this cost graph does not start at ZERO. It starts at a fixed base amount which is $1,000. And then increase with the increase in units forming a linear relationship from there

c.
Cost Graph Three depicts this.
Depreciation in totality remains the same. But if the units are increased the per unit depreciation will decrease since the denominator is increasing. The graph depicts the same.

d.
Cost Graph one depicts fixed costs. If you see the costs remain the same, there are no increased, there are no decreases. Supervisor's salary is one such cost. There are no increases, no decreases with the output.

We need to calculate weighted average break even first.

Contribution per business class seat = Sale price per business class seat - Variable cost per business Class seat = 610 - 70
= $540 per seat

Contribution per economy class seat = Sale price per economy class seat - Variable cost per economy Class seat = 295 - 55
                                                           = $240 per seat

Weighted average contribution = 540 X 10% + 240 X 90% = $270

Breakeven Sales = Fixed Costs / Contribution per seat
= (15,228 + 11,664 + 5,508) / 270
= 120 seats

Business (10%) = 12 seats
Economy (90%) = 108 seats