The State Department of Taxation processes and audits income-tax returns for state residents. The state tax commissioner has recently begun a program of work measurement to help in estimating the costs of running the department. The independent variable used in the program is the number of returns processed. The analysis revealed that the following variable costs are incurred in auditing a typical tax return.
Time spent by clerical employees, 10 hours at $12 per hour
Time spent by tax professional, 20 hours at $25 per hour
Computer time, $50 per audit
Telephone charges, $10 per audit
Postage, $2 per audit
In addition, the department incurs $10,000 of fixed costs each month that are associated with the process of auditing returns.
Required: Draw a graph depicting the monthly costs of auditing state tax returns. Label the horizontal axis “Tax returns audited:”
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