The accompanying figures are a number of cost behavior patterns that might be found in a company’s cost structure. The vertical axis on each graph represents total cost, and the horizontal axis on each graph represents level of activity (volume). For each of the situations that follow, identify the graph that illustrates the cost pattern involved. Any graph may be used more than once5.
(a) Electricity bill—a flat-rate fixed charge, plus a variable cost after a certain number of kilowatt-hours are used.
(b) City water bill, which is computed as follows:
First 1,000,000 gallons $1,000 flat or less rate
Next 10,000 gallons $0.003 per gallon used
Next 10,000 gallons $0.006 per gallon used
Next 10,000 gallons $0.009 per gallon used
(c) Depreciation of equipment, where the amount is computed by the straight-line method. When the depreciation rate was established, it was anticipated that the obsolescence factor would be greater than the wear-and-tear factor.
(d) Rent on a factory building donated by the city, where the agreement calls for a fixed fee payment unless 200,000 labor-hours or more are worked, in which case no rent need be paid.
(e) Cost of raw materials, where the cost decreases by 5 cents per unit for each of the first 100 units purchased, after which it remains constant at $2.50 per unit.
(f) Salaries of maintenance workers, where one maintenance worker is needed for every 1,000 machine-hours or less (that is, 0 to 1,000 hours requires one maintenance worker, 1,001 to 2,000 hours requires two maintenance workers, etc.).
(g) Cost of raw materials used.
(h) Rent on a factory building donated by the county, where the agreement calls for rent of $100,000, less $1 for each direct labor-hour worked in excess of 200,000 hours, but a minimum rental payment of $20,000 must be paid.
(i) Use of a machine under a lease, where a minimum charge of $1,000 must be paid for up to 400 hours of machine time. After 400 hours of machine time, an additional charge of $2 per hour is paid, up to a maximum charge of $2,000 per period.