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Solution to topic 4 tutorial

# Solution to topic 4 tutorial - SOLUT IO N TO TOP IC 4 T U...

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SOLUTION TO TOPIC 4 TUTORIAL TOPIC: Cost Behaviour and Planning 6-7 As the level of activity (or cost driver) increases, total variable cost increases proportionately and the variable cost per unit remains constant. 6-10 The cost analyst should respond by pointing out that in most cases a cost behavior pattern should be limited to the relevant range of activity. When the firm's utility cost was shown as a semivariable cost, it is likely that only some portion in the middle of the graph would fall within the relevant range. Within the relevant range, the firm's utility cost can be approximated reasonably closely by a semivariable cost behavior pattern. However, outside that range (including an activity level of zero), the semivariable cost behavior pattern should not be used as an approximation of the utility cost. 6-29 1. Variable cost per pint of applesauce produced = Total cost at 123,000 pints ........................................ \$72,300 Variable cost at 123,000 pints (123,000 × \$.10 per pint) ................................... 12,300 Fixed cost ................................................................. \$60,000 Cost equation: Total energy cost = \$60,000 + \$.10X, where X denotes pints of applesauce produced 2. Cost prediction when 78,000 pints of applesauce are produced

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Energy cost = \$60,000 + (\$.10)(78,000) = \$67,800 6-35 1. h 5. a 9. d 2. i 6. g 10. k 3. f 7. c 11. l 4. e 8. b Note that j was not used.
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