The behaviour of the annual repair and maintenance cost for the Blue 1-lills Bus Company is shown by the solid line in the following graph. The dashed line depicts a semivariable cost approximation of the company’s repair and maintenance cost.
1. What is the actual (curvilinear) and estimated (semivariable) cost shown by the graph for each of the following activity levels?
(a) 20,000 kilometres
(b) 40,000 kilometres
(c) 60,000 kilometres
(d) 80,000 kilometres
2. How good an approximation does the semivariable cost pattern provide if the company’s expected level of activity falls between 40,000 and 60,000 kilometres per month? What if the expected range of activity is 20,000 to 90,000 kilometres per month?