# Question

The graphs below represent cost behavior patterns that might occur in a company’s cost structure. The vertical axis represents total cost, and the horizontal axis represents activity output.

Required:

For each of the following situations, choose the graph from the group a–l that best illustrates the cost pattern involved. Also, for each situation, identify the driver that measures activity output.

1. The cost of power when a fixed fee of $500 per month is charged plus an additional charge of $0.12 per kilowatt-hour used.

2. Commissions paid to sales representatives. Commissions are paid at the rate of 5 percent of sales made up to total annual sales of $500,000, and 7 percent of sales above $500,000.

3. A part purchased from an outside supplier costs $12 per part for the first 3,000 parts and $10 per part for all parts purchased in excess of 3,000 units.

4. The cost of surgical gloves, which are purchased in increments of 100 units (gloves come in boxes of 100 pairs).

5. The cost of tuition at a local college that charges $250 per credit hour up to 15 credit hours. Hours taken in excess of 15 are free.

6. The cost of tuition at another college that charges $4,500 per semester for any course load ranging from 12 to 16 credit hours. Students taking fewer than 12 credit hours are charged $375 per credit hour. Students taking more than 16 credit hours are charged $4,500 plus $300 per credit hour in excess of 16.

Required:

For each of the following situations, choose the graph from the group a–l that best illustrates the cost pattern involved. Also, for each situation, identify the driver that measures activity output.

1. The cost of power when a fixed fee of $500 per month is charged plus an additional charge of $0.12 per kilowatt-hour used.

2. Commissions paid to sales representatives. Commissions are paid at the rate of 5 percent of sales made up to total annual sales of $500,000, and 7 percent of sales above $500,000.

3. A part purchased from an outside supplier costs $12 per part for the first 3,000 parts and $10 per part for all parts purchased in excess of 3,000 units.

4. The cost of surgical gloves, which are purchased in increments of 100 units (gloves come in boxes of 100 pairs).

5. The cost of tuition at a local college that charges $250 per credit hour up to 15 credit hours. Hours taken in excess of 15 are free.

6. The cost of tuition at another college that charges $4,500 per semester for any course load ranging from 12 to 16 credit hours. Students taking fewer than 12 credit hours are charged $375 per credit hour. Students taking more than 16 credit hours are charged $4,500 plus $300 per credit hour in excess of 16.

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