A number of graphs displaying cost behavior patterns are shown below. The vertical axis on each graph represents total cost and the horizontal axis represents the level of activity (volume).

A number of graphs displaying cost behavior patterns are shown below. The vertical axis on each graph represents total cost and the horizontal axis represents the level of activity (volume).

Consider the cost behavior patterns of each of the following situations:
a.	Electricity bill—a flat 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 or less	$1,000 flat fee
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
Etc.	Etc.

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 starts at $7.50 per unit and then 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 hours of 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 material 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 is 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.

Required:
1.	For each of the above situations, identify the graph that illustrates the cost behavior pattern involved.

Situation	Graph
a.	6
b.	11
c.	1
d.	4
e.	2
f.	10
g.	3
h.	7
i.	9

2.	Would a knowledge of cost behavior patterns such as those above be of help to a manager in analyzing the cost structure of his or her company?
	Yes

Explanation:

2.

Without an understanding of the underlying cost behavior patterns, it would be difficult, if not impossible for a manager to properly analyze the firm's cost structure. The reason is that all costs don't behave in the same way. One cost might move in one direction as a result of a particular action, and another cost might move in an opposite direction. Unless the behavior pattern of each cost is clearly understood, the impact of a firm's activities on its costs will not be known until after the activity has occurred.