Question 2 The accompanying figures are a number of cost behaviour 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 best illustrates the cost pattern involved. Any graph may be used more than once. (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 2,000,000 litres $1,000 flat or less rate Next 20,000 litres $0.006 per litre used Next 20,000 litres $0.012 per litre used Next 20,000 litres $0.018 per litre used etc. (c) Rent on a factory building donated by the city, where the agreement calls for a fixed fee payment unless 200,000 labour-hours or more are worked, in which case no rent need by paid.
(d) 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. (e) 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 requires two maintenance workers, etc). (f) Cost of raw materials used (g) Rent on a factory building donated by the state, where the agreement calls for rent of $100,000, less $1 for each direct labour-hour worked in excess of 200,000 hours, but a minimum rental payment of $20,000 must be paid (h) 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.
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