Variable Costs Lose Linearity with Volume Discounts

Steps:

• Recall that variable costs form a straight line on a break-even chart when they increase proportionally with output at a constant rate per unit.
• Identify factors that alter the cost per unit as production volume changes, breaking proportionality.
• Evaluate each option: discounts reduce per-unit cost at higher volumes, while others add fixed or step costs.
• Confirm the factor causing non-linearity is one tied to output-dependent pricing changes.

Why A is correct:

• Bulk-buying discounts lower the variable cost per unit beyond certain output thresholds, violating the constant rate assumption in the variable cost formula (total VC = units × constant VC per unit).

Why the others are wrong:

• B: Employing an extra supervisor adds a fixed cost, independent of output volume.
• C: Plant and machinery depreciation is a fixed cost, spread evenly regardless of production levels.
• D: Renting additional warehouse space creates a step-fixed cost, jumping at specific points but not varying continuously with output.

Final answer: A