Managers often assume a strictly linear relationship between cost and volume. How can this practice be defended in light of the fact that many costs are curvilinear?

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23-08-2022
Business

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Managers often assume a strictly linear relationship between cost and volume. How can this practice be defended in light of the fact that many costs are curvilinear?

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rafikiedu08 rafikiedu08 · Answer 1 · 2022-08-28T08:34:33+02:00

Managers frequently believe that cost and volume have a tight linear connection. Given the fact that many expenses are curvilinear, this technique should be supported.

Curvilinear costs are utility costs that exhibit a behavior whereby high volume activities will result in an increase in marginal cost and whereby marginal cost will drop as the volume of activity decreases.

The cost of these activities is depicted on a curved graph.

An expense that rises at a variable rate as output volume rises is referred to as a curvilinear cost, also known as a nonlinear cost. Or to put it another way, this is irregular.

Straight lines can be used to represent curved costs, however this can only be done for narrow bond activities that fall within the required range. As a result, it may be claimed that the managers' assumptions about the correlations between costs and volumes will be reasonably correct over the pertinent range.

Managers based their predictions on the behavior of straight-line costs, although curvilinear costs support their methods because their graphs are curved.

Example

Nonlinear costs often consist of collections of costs. For hourly employees, total direct labor is an irregular expenditure. Fewer hourly employees are required at lower stages of production, which results in cheaper costs. More personnel are required as production levels reach the midpoint. While costs rise, greater efficiencies are also created, allowing the same number of people to produce more with the same amount of labor. When output hits its peak levels, more workers are required, driving up overall labor expenses.

As you can see, this nonlinear line resembles the traditional graph "s" shape. At low levels of output, production costs rise, then level off at mid levels before rising once again at high levels. Management may frequently draw step-wise incremental cost lines together with curved cost lines.

These cost curves are used by management to plan operations and compute important ratios, such as the break-even threshold in units. These curves may also be used by management to determine if present production levels are long-term viable and to predict whether to increase capacity or hire more workers.

To learn more about curvilinear cost visit:https://brainly.com/question/13031417

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