The Graph Below Was Produced After Recording the Processing Costs

question 88

Essay

The graph below was produced after recording the processing costs of Oki Products observed over the last 10 months using the following data:

Required:
a.Using the graph identify the monthly fixed costs.What additional information might you determine from the graph?
b.The chart above indicates total processing costs of $47,000 at a level of 9,000 units for month 5.Using this level of activity and your fixed costs determined in a,calculate the variable cost per unit to the nearest cent.Express your results in the form of a linear equation y = a + bx.
c.Use the high low method to determine the variable cost per unit and fixed cost per month.Express your results in the form of a linear equation y = a + bx.
d.Comment on the differences between the results in b and c.Which result would you consider more accurate and why?

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Definitions:

Negative Slope

A feature of a line on a graph that indicates a decrease in the dependent variable as the independent variable increases.

Production Possibilities

The different quantities of goods and services that an economy can produce given its available resources and technology, as represented by a production possibility curve.

Better Technology

Improvements or advancements in technology that increase efficiency or productivity.

Concave Production Possibilities Curve

A graphical representation indicating increasing opportunity costs as more of one good is produced, resulting in a bowed-out shape.