Shenandoah Valley Golf Association is a nonprofit, private organization that operates three 18-hole golf courses in Virginia. The organization’s financial director has just analyzed the course maintenance costs incurred by the golf association during recent summers. The courses are maintained by a full-time crew of four people, who are assisted by part-time employees. These employees are typically college students on their summer vacations. The course maintenance costs vary with the number of people using the course. Since a large part of the maintenance work is done by part-time employees, the maintenance crew size can easily be adjusted to reflect current needs. The financial director’s analysis revealed that the course maintenance cost includes two components:

• A fixed component of $13,000 per month (when the courses are open).

• A step-variable cost component. For each additional 1 to 10 people teeing off in one day, $10 in costs are incurred. Thus, if 101 to 110 people tee off, $110 of additional cost will be incurred. If 111 to 120 people tee off, $120 of additional cost will be incurred.

Required:

1. Draw a graph of Shenandoah Valley Golf Association’s course maintenance costs. Show on the graph the fixed-cost component and the step-variable cost component. Label each clearly.

2. Use a semivariable-cost behavior pattern to approximate the golf association’s course maintenance cost behavior. Visually fit the semivariable cost line to your graph.

3. Using your graph, estimate the variable- and fixed-cost component included in your semivariable approximation. Express this approximate cost behavior pattern in equation form.

4. Fill in the following table of costpredictions.

Transcribed Image Text:

Predicted Course Maintenance Costs Using Fixed Cost Coupled with Step-Variable Cost Behavior Pattern Using Semivariable Cost Approximation 150 people tee off 158 people tee off