The graphs below represent approximations of cost behavior patterns. The horizon
ID: 2328344 • Letter: T
Question
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. 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. AnswerABCDEFGH
f. Cost of factory supplies when increasing quantities bring cost discounts as each price break level is attained. AnswerABCDEFGH
B. Salaries of quality inspectors when one additional inspector is hired for each 20,000 units produced. AnswerABCDEFGH
C. Cost of an advertising campaign.AnswerABCDEFGH
Explanation / Answer
A) The water bill is fixed for first 10,000 gallons of water used and then it increases for additional 10,000 gallons. Examples for first 10,000 gallons, water bill is $500 and for any additional 10,000 gallons it shall be $700 and thus increasing with every additional 10,000 gallons.
Hence the correct graph for this scenario is (G)
B) The salary of quality inspector for 20,000 units is fixed as there is only one inspector. However as the production shall increase, a new inspector shall be appointed for additional 20,000 units and so for another additional 20,000 units. This condition is also similar to part(A) above.
Hence the correct graph for this scenario is (G)
C) cost of an advertisement campaign is fixed cost. It shall be incurred irrespective of how many units sold. For eg advertisement campaigning cost incurred $100,000, now sale may be 1 units or 100 units or 1000 units. Cost already incurred does not have any effect on units sold.
Hence the correct graph for this scenario is (E)
D and E part are missing
F) cost of factory supplies increases with the production however the seller is giving cost discount for increased quantities. Assume 1 unit of raw material cost $1 and after 100 units cost is reduced to $0.95 and after additional 100 units cost is reduced to $0.90. Hence cost is increasing with the increase in units but in a diminishing manner.
Hence the correct graph for this scenario is (B)
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