Various cost-behavior patterns. (CPA, adapted) Select the...

Various cost-behavior patterns. (CPA, adapted) Select the graph that matches the numbered manufacturing cost data (requirements 1-9). Indicate by letter which graph best fits the situation or item described. The vertical axes of the graphs represent total cost, and the horizontal axes represent units produced 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, in which the quantity of kilowatt-hours used varies proportionately with quantity of units produced. 3. City water bill, which is computed as follows: The gallons of water used vary proportionately with the quantity of production output. 4. cost of direct materials, where direct material cost per unit produced decreases with each pound of material used (for example, if 1 pound is used, the cost is $\$ 10$; if 2 pounds are used, the cost is $\$ 19.98$; if 3 pounds are used, the cost is $\$ 29.94$, with a minimum cost per unit of $\$ 9.20$ 5. Annual depreciation of equipment, where the amount is computed by the straight-line method. When the depreciation schedule was prepared, it was anticipated that the obsolescence factor would be greater than the wear-and-tear factor. 6. Rent on a manufacturing plant donated by the city, where the agreement calls for a fixed-fee payment unless 200,000 labor-hours are worked, in which case no rent is paid. 7. Salaries of repair personnel, where one person is needed for every 1,000 machine-hours or less (that is, 0 to 1,000 hours requires one person, 1,001 to 2,000 hours requires two people, and so onl. 8. cost of direct materials used (assume no quantity discounts). 9. Rent on a manufacturing plant donated by the county, where the agreement calls for rent of $\$ 100,000$ to be reduced by $\$ 1$ for each direct manufacturing labor-hour worked in excess of 200,000 hours, but a minimum rental fee of $\$ 20,000$ must be paid.

Various cost-behavior patterns. (CPA, adapted) Select the graph that matches the numbered manufacturing cost data (requirements 1-9). Indicate by letter which graph best fits the situation or item described.
The vertical axes of the graphs represent total cost, and the horizontal axes represent units produced 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, in which the quantity of kilowatt-hours used varies proportionately with quantity of units produced.
3. City water bill, which is computed as follows:
The gallons of water used vary proportionately with the quantity of production output.
4. cost of direct materials, where direct material cost per unit produced decreases with each pound of material used (for example, if 1 pound is used, the cost is $\$ 10$; if 2 pounds are used, the cost is $\$ 19.98$; if 3 pounds are used, the cost is $\$ 29.94$, with a minimum cost per unit of $\$ 9.20$
5. Annual depreciation of equipment, where the amount is computed by the straight-line method. When the depreciation schedule was prepared, it was anticipated that the obsolescence factor would be greater than the wear-and-tear factor.
6. Rent on a manufacturing plant donated by the city, where the agreement calls for a fixed-fee payment unless 200,000 labor-hours are worked, in which case no rent is paid.
7. Salaries of repair personnel, where one person is needed for every 1,000 machine-hours or less (that is, 0 to 1,000 hours requires one person, 1,001 to 2,000 hours requires two people, and so onl.
8. cost of direct materials used (assume no quantity discounts).
9. Rent on a manufacturing plant donated by the county, where the agreement calls for rent of $\$ 100,000$ to be reduced by $\$ 1$ for each direct manufacturing labor-hour worked in excess of 200,000 hours, but a minimum rental fee of $\$ 20,000$ must be paid.

Key Concepts

Fixed Costs

Fixed costs are expenses that do not change with the level of production or activity over a relevant range. These costs remain constant regardless of how many units are produced, such as rent or straight-line depreciation, and are typically represented graphically as a horizontal line starting at a nonzero intercept on the cost axis.

Variable Costs

Variable costs fluctuate in direct proportion to changes in the level of production or activity. As more units are produced, total variable costs increase linearly from the origin, making them easy to predict on a graph by drawing a straight line through the origin with a constant slope. Direct materials, where costs rise with each additional unit, are a classic example.

Mixed (Semi-variable) Costs

Mixed costs, also known as semi-variable costs, consist of both a fixed component and a variable component. They demonstrate an initial fixed expense that is incurred regardless of production levels, plus an additional cost that varies in direct proportion to the level of activity. Graphically, this behavior is shown as a line that starts at a positive fixed amount and then increases with production.

Step Costs

Step costs remain fixed over a range of production levels but jump to a higher level once a certain threshold is exceeded. In graphical representations, these costs appear as a series of horizontal segments, each at a different cost level, reflecting the discrete increase in expenses when additional resources (like additional employees or equipment) are required.

Depreciation Methods

Depreciation methods allocate the cost of a capital asset over its useful life and can exhibit different cost behaviors. For example, a straight-line method produces a fixed depreciation expense regardless of production levels, while a usage-based (or machine-hours) method ties the depreciation expense to the asset’s actual use, resulting in a variable cost pattern that changes with production activity.

Economies of Scale

Economies of scale occur when increasing production leads to a decrease in the per-unit cost due to the spreading of fixed costs or the benefits of bulk purchasing. This concept is highlighted when cost per unit declines as production volume rises, which is an important consideration in analyzing cost behaviors and efficiencies in production processes.

Transcript

00:01 So this question, we're given about nine graphs, and we are asked to select the graphs that best matches the number manufacturing cost data, any kit by letter which graph bets fits the situation described.

00:17 And the question is, the vertical axis of the graph below represents total cost, horizontal axis represents units produced.

00:27 So, vertical axes represent total cost, horizontal axis represent units produced during a year, and in each case, the zero point of dollar and production is at the intersection of two axes.

00:48 So at the intersect is where we have the zero point of dollar and production.

01:03 So now we have like about nine graphs.

01:06 I'll select the graphs that matches the best, the numbers of each questions, basically.

01:13 So i think i'll just be drawing the graph.

01:16 So graph a looks like this.

01:20 They're really small.

01:24 Graph a looks something like this.

01:27 I mean, the graph should be in the book, but i just want to make it easy.

01:31 Graph b looks like this.

01:38 Something like this.

01:40 Graph c looks like this graph say looks like this graph t looks like this graph e looks like this that's graph e graph f looks like this mm -hmm graph g looks like this and h looks like this i looks like this j looks like this k looks like this and l looks like this so these are the graphs and then we have a question a list question so the first question which is a which is one um annual depreciation of equipments where amounts of depreciation charge is computed by the machine hours method the graph the matches on this one is graph k because it's an annual depreciation of equipment and the amount of the um depreciation is computed by the machine hours computer so that's k.

04:33 The second question.

04:35 Electricity bill of flat fixed charge plus a variable cost after a starting number of kilowatt hours are used in which the quality quantity of kilowatt hours use varies proportionately with quantity of units produced.

04:56 With this one, we use graph b.

05:03 Question c.

05:06 The city water bill is computed as following with the first, next, and so on, gallons and the flat fee used.

05:16 And the gallons of water used vary proportionately with the quantity of production outputs...

Please give Ace some feedback