Question

Assuming costs are represented on the vertical axis and volume of activity on the horizontal axis, which of the following costs would be represented by a line that starts at the origin and reaches a maximum value beyond which the line is parallel to the horizontal axis?

a. total direct material costs
b. a consultant paid $100 per hour with a maximum fee of $2,000
c. employees who are paid $15 per hour and guaranteed a minimum weekly wage of $300
d. rent on exhibit space at a convention

Answer 1

A consultant paid $100 per hour with a maximum fee of $2,000 would be represented by a cost line that starts at the origin and flattens once the fee cap is reached. The correct answer is option b.

Step-by-step explanation:

Assuming costs are represented on the vertical axis and volume of activity on the horizontal axis, the cost option that would be represented by a line that starts at the origin and reaches a maximum value beyond which the line is parallel to the horizontal axis is b.

In this case, the cost increases with each additional hour until the total cost hits $2,000, at which point additional hours do not increase the total cost, thereby resulting in a horizontal line parallel to the horizontal axis in the graph.Other options provided: a. total direct material costs typically increase constantly with volume and do not cap.

Therefore would not fit the description. c. employees who are paid $15 per hour and guaranteed a minimum weekly wage of $300 depicts a scenario where the line starts above the origin due to the guaranteed minimum.