Step Costs, Relevant Range Vargas, Inc., produces industrial machinery. Vargas has a machining department and a group of direct laborers called machinists. Each machinist is paid $25,000 and can machine up to 500 units per year. Vargas also hires supervisors to develop machine specification plans and to oversee production within the machining department. Given the planning and supervisory work, a supervisor can oversee three machinists, at most. Vargas'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): Units Produced Direct Labor Supervision 0-500 $ 25,000 $ 40,000 50,000 501-1,000 1,001-1,500 40,000 40,000 75,000 1,501-2,000 100,000 80,000 125,000 80,000 150,000 80,000 2,001-2,500 2,501-3,000 3,001-3,500 3,501-4,000 175,000 120,000 120,000 200,000 1. Based on the information provided, select two graphs: one that illustrates the relationship between direct labor cost and units produced, and one that illustrates the relationship between the cost of supervision and units produced. Graph of direct labor cost: a. b. Direct Labor Cost Direct Labor Cost $250,000 $250,000 $200,000 $200,000 $150,000 $150,000 $100,000 $100,000 $50,000 $50,000 $0 $0 0 1,000 4.000 5,000 0 1,000 4,000 5,000 2,000 3,000 Units Produced 2,000 3,000 Units Produced C. d. Direct Labor Cost Direct Labor Cost $250,000 $250,000 $200,000 $200,000 $150,000 $150,000 $100,000 $100,000 $50,000 $50,000 $0 $0 0 1,000 4,000 5,000 0 1,000 4,000 5.000 2,000 3.000 Units Produced 2,000 3,000 Units Produced Graph of cost of supervision: a. b. Cost of Supervision Cost of Supervision $140,000 $140,000 $120,000 $120,000 $100,000 $100,000 $80,000 $80,000 Cost Cost $60,000 $60,000 $40,000 $40,000 $20,000 $20,000 $0 T $0 0 1,000 4,000 5,000 1,000 4,000 5,000 2,000 3,000 Units Produced 2,000 3,000 Units Produced c. d. Cost of Supervision Cost of Supervision $140,000 $140,000 $120,000 $120,000 $100,000 $100,000 $80,000 $80,000 $60.000 $60.000 $40,000 $40,000 $20,000 $20,000 SO 0 SO 0 1,000 4,000 5,000 1,000 4,000 5,000 2,000 3,000 Units Produced 2,000 3,000 Units Produced The correct answer is 3. Suppose that the normal range of activity is between 2,400 and 2,450 units and that the exact number of machinists is currently hired to support this level of activity. Further suppose that production for the next year is expected to increase by an additional 400 units. If there is no increase, enter "0". How much will the cost of direct labor increase? How much will the cost of supervision increase
