Part I

Claudias back!

She thought shed like chapter 21 (learning about cost behavior) much better than chapter 20. That was, at least, until she saw the Variable cost graphs in Exhibit 1 (page 1023) and the Fixed cost graphs in Exhibit 3 on page 1025. (She hasnt yet seen the mixed costs on page 1026!)

What do we need those for? she mutters under her breath. She thinks she understands the first graph on page 1023 and the first graph on page 1025 but she thinks the authors made a mistake with the second graphs in those sets.

Please explain to Claudia what each of those four graphs means and whether the textbook authors made mistakes, as she claims, with the unit-cost graphs. Why are the unit-cost graphs so different from the total cost graphs?

Part II

(1) Please define TWO of the following terms.

• Activity Base (Driver)
• Fixed Costs
• High-Low Method
• Mixed Costs
• Relevant Range
• Variable Costs

(2) Consider McDonalds for a moment and list an example of each of the following costs that would be incurred by a McDonalds restaurant: (a) a fixed cost, (b) variable cost, and (c) mixed cost. Please be specific and explain why each is a good fit in that category.

(Note: For the variable cost on your list, please identify the activity base (driver))