Bellati, Inc. produces large industrial machinery. Bellati has a machining department and a group of direct laborers called machinists. Each machinist is paid $36,000 and can machine up to 500 units per year. Bellati also hires supervisors to develop machine spec¬

ification plans and to oversee production within the machining department. Given the planning and supervisory work, a supervisor can oversee three machinists, at most. Bellati's accounting and production history reveal the following relationships between units produced and the costs of direct labor and supervision (measured on an annual basis):

Required:
1. Prepare two graphs, one that illustrates the relationship between direct labor cost and units produced and one that illustrates the relationship between the cost of super¬
vision and units produced. Let cost be the vertical axis and units produced the hori¬
zontal axis.
2. How would you classify each cost? Why?
3. Suppose that the normal range of activity is between 1,251 and 1,500 units and that the exact number of machinists are currently hired to support this level of activity. Further suppose that production for the next year is expected to increase by an additional 500 umts. How much will the cost of direct labor increase (and how will this increase be realized)? Cost of supervision?

Transcribed Image Text:

Units Produced Direct Labor Supervision 0-500 $ 36,000 $ 40,000 501-1,000 72,000 40,000 1,001-1,500 108,000 40,000 1,501-2,000 144,000 80,000 2,001-2,500 180,000 80,000 2,501-3,000 216,000 80,000 3,001-3,500 252,000 120,000 3,501-4,000 288,000 120,000