Accounting for Decision Making and Control 7th Edition by Jerold Zimmerman

Exercise 15

Cost Behavior Patterns
For each of the following questions draw a graph that depicts how costs vary with volume. Com­pletely label each graph and axis.
a. Plant XXX works a 40-hour week. Management can vary the number of employees. Currently, 200 employees are being paid $10 per hour. The plant is near capacity. To increase output, a second 40-hour shift is being considered. To attract employees to the second shift, a 20 percent wage premium will be offered. Plot total labor costs as a function of labor hours per week.
b. Plant YYY has a contract with the Texas Gas Company to purchase up to 150 million cubic feet of natural gas per month for a flat fee of $1.5 million. Additional gas can be purchased for $0.0175 per cubic foot. Plant YYY manufactures aluminum cans. One thousand cans require 10 cubic feet of gas. Plot total gas costs as a function of can production.
c. Use the same facts as in ( b ), but plot the gas cost per can as a function of can production.