MIXED COSTS

Ben Palman owns an art gallery. He accepts paintings and sculpture on consignment and then receives 20 percent of the price of each piece as his fee. Space is limited, and there are costs involved, so Ben is careful about accepting artists. When he does accept one, he arranges for an opening show (usually for three hours on a weekend night) and sends out invitations to his customer list. At the opening, he serves wine, soft drinks, and appetizers to create a comfortable environment for prospective customers to view the new works and to chat with the artist. On average, each opening costs $500. Ben has given as many as 20 opening shows in a year. The total cost of running the gallery, including rent, furniture and fixtures, utilities, and a part-time assistant, amounts to $80,000 per year.

Required:

1. Prepare a graph that illustrates the relationship between the cost of giving opening shows and the number of opening shows given. (Let opening show cost be the vertical axis and number of opening shows given the horizontal axis.) Would you classify this cost as a strictly variable cost, a fixed cost, or a mixed cost?

2. Prepare a graph that illustrates the relationship between the cost of running the gallery and the number of opening shows given. (Let gallery cost be the vertical axis and number of opening shows given the horizontal axis.) Would you classify this cost as a strictly variable cost, a fixed cost, or a mixed cost?

3. Prepare a graph that illustrates the relationship between Ben's total costs (the sum of the costs of giving opening shows and running the gallery) and the number of opening shows given. (Let total cost be the vertical axis and number of opening shows given the horizontal axis.) Would you classify this cost as a strictly variable cost, a fixed cost, or a mixed cost?