Cashion Company produces chemical mixtures for veterinary pharmaceutical companies. Its factory has four mixing lines that mix various powdered chemicals together according to specified formulas. Each line can produce up to 5,000 barrels per year. Each line has one supervisor who is paid $34,000 per year. Depreciation on equipment averages $16,000 per year. Direct materials and power cost about $4.50 per unit.
1. Prepare a graph for each of these three costs: equipment depreciation, supervisors' wages, and direct materials and power. Use the vertical axis for cost and the horizontal axis for units (barrels). Assume that sales range from 0 to 20,000 units.
2. Assume that the normal operating range for the company is $16,000 to $19,000 units per year. How would you classify each of the three types of cost?