Chapter 4, Problem 1P

The cost behavior patterns below are lettered A through H. The vertical axes of the graphs represent total dollars of expense, and the horizontal axes represent production in units, machine hours, or direct labor hours. In each case, the zero point is at the intersection of the two axes. Each graph may be used no more than once.

Required:

Select the graph that matches the lettered cost described here.

1. a. Depreciation of equipment–the amount of depreciation charged is computed based on the number of machine hours that the equipment was operated.
2. b. Electricity bill–flat fixed charge, plus a variable cost after a certain number of kilowatt hours are used.
3. c. City water bill–computed as follows:

1. d. Depreciation of equipment–the amount is computed by the straight-line method.
2. e. Rent on a factory building donated by the city–the agreement calls for a fixed fee payment, unless 200,000 labor hours are worked, in which case no rent need be paid.
3. f. Salaries of repair workers–one repair worker is needed for every 1,000 machine hours or less (i.e., 0 to 1,000 hours requires one repair worker, 1,001 to 2,000 hours requires two repair workers, etc.).