The Income Statement for Pumpkin Co. is shown below:
1 answer:
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Answer: Please refer to Explanation
Explanation:
To make your question clearer, I have attached a table that demarcates the figures.
Series 1 are FIXED COSTS. Fixed costs do not change over the production process and are not dependent on the level of production. Even if you were not producing anything you would still be accruing fixed costs. Notice how the cost stays at $450 throughout even when no production was being done. It is a fixed cost.
Series 2 is a VARIABLE COST. Variable costs change as production takes place. They rise as more goods are produced and usually do so at a steady rate. Variable costs are not incurred when production is not going on. Notice in Series 2 how there was no cost at 0 units but as soon as production started the costs started increasing at a steady rate of 800 per hundred units.
Series 3 is what we call STEP-WISE COST. It gets it's name from the fact that it looks like a step when graphed. Why?
These costs stay stable for a certain amount of production and then change depending on if production increases or decreases. Notice how from 0 units to 200 units it stayed the same and then increased and stayed the same again.
I have attached a sample of step wise costs.
Series 4 is what we call CURVILINEAR COST. They are the confused guys so to speak because they increase at an irregular rate as production rises. Notice how it increased by 5 and then by 15 and then by 25. Irregular rate rise. I have also attached a sample of this when it is graphed.
Thanks all I have for today. Thank you for coming to my Ted Talk. If you need any clarification do comment.
