Ch 3 Homework Step Costs, Relevant Range eBook Print Item Bellati Inc. produces large industrial machinery. Bellati has a machining department and a group of direct laborers called machinists. Each machinist can machine up to 500 units per year. Bellati also hires supervisors to develop machine specification plans and oversee production within the machining department. Given the planning and supervisory work, a supervisor can oversee, at most, three machinists. Bellati's accounting and production history shows the following relationships between number of units produced and the annual costs of supervision and materials handling (by machinists): Units Produced Direct Labor Supervision 0-500 $ 36,000 $44,000 501-1,000 72,000 44,000 1,001-1,500 105,000 44,000 1,501-2,000 149,000 86,000 > 2,001-2,500 180,000 86,000 2,501-3,000 216,000 86,000 3,001-3,500 252,000 120,000 3,501-4,000 288,000 120,000 Required: 1. On your own paper, prepare a graph that illustrates the relationship between direct labor cost and number of units produced in the machining department. (Let cost be the vertical axis and number of units produced be the horizontal axis.) Would you classify this cost as a strictly variable cost, a fixed cost, or a step cost? Step cost Ch 3 Homework Required: eBook Print Item 1. On your own paper, prepare a graph that illustrates the relationship between direct labor cost and number of units produced in the machining department. (Let cost be the vertical axis and number of units produced be the horizontal axis.) Would you classify this cost as a strictly variable cost, a fixed cost, or a step cost? Step cost 2. On your own paper, prepare a graph that illustrates the relationship between the cost of supervision and the number of units produced. (Let cost be the vertical axis and number of units produced be the horizontal axis.) Would you classify this cost as a strictly variable cost, a fixed cost, or a step cost? Step cost 3. Suppose that the normal range of production is between 1,400 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 units. What is the increase in the cost of direct labor? Cost of supervision? Cost of direct labor s >Cost of supervision s Feedback Check My Work 1. A step cost is a constant amount for a range of production. Set up the graph with units across the horizontal line and Direct Labor along the vertical line. Start with the first level of $36,000 for 0-500 units with a horizontal line. Do this for each level with a horizontal line for the unit range at the Direct Labor cost. Connect the horizontal lines with vertical lines to complete your graph. 2. A step cost is a constant amount for a range of production. Set up the graph with units across the horizontal line and cost of supervision along the vertical line. Start with the first level of $40,000 for 0-500 units with a horizontal line. Do this for each level with a horizontal line for the unit range at the supervision cost. Connect the horizontal lines with vertical lines to complete your graph. 3. Calculate the difference between the levels 1400-1500 and the 500 increase (1900-2000).