Distinguishing between variable and fixed costs

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Reference no: EM131900882

· Units produced and sold = 420

Sales ($80 per unit selling price) = $33600

· Cost of goods sold ($30 per unit, all variable costs) = $12600

· Labor = $0 (Mr. and Mr. Lee were the only ones working and di not pay themselves)

· Advertising fees =$2000

· Bank fees = $150

· Phone/internet = $1200

· Shipping ($3 per unit) = $1260

· Utilities = $900

· Office supplies = $800

· Interest expense on note payable = $350

· Depreciation expense (straight line) = $800

· Income tax rate = 26 %

· Proceeds from sale of equipment = $3000. The equipment originally cost $1000 and had accumulated depreciation of $200.

· Purchase of equipment = $1600 (The machine is purchased on the last day of 20XX so no depreciation expense is recorded.)

· Repayment of note payable = $5000

· Consider any data relevant from the income statement.

· Cash and cash equivalents = $10000

· Accounts receivable = $0 (Cash is received at time of sale)

· Raw materials inventory = $10500

· Equipment = $5000 (This includes the $1000 cost of the equipment sold in 20XX).

· Accumulated depreciation = $1,000 (This includes the accumulated depreciation of 200 for the equipment sold in 20XX.

· Accounts payable = $0 (Cash is paid at the time of purchase.)

· Note payable = $5000 (This is the note payable which is repaid in 20XX)

· Common stock = $15000

· Retained earnings = $4500

A. Classify each of the costs (a. through j.) below under C. as a variable cost or a fixed cost.

B. Explain the importance of distinguishing between variable and fixed costs.

C. Prepare a budgeted income statement, assuming 600 units to be produced and sold, a per unit selling price of $85, an income tax rate of 28% and the following information.

D· One part-time employee will be hired to take care of packaging and shipping. This employee will be paid $10 per hour. He or she is estimated to work 40 hours total per month.

Break-Even Analysis: You have been asked to calculate how many units need to be sold to break even, based on the costs provided in task #3. Assume that only one conference will be attended and the estimated expenses associated with this conference are on target. Use the information in task #3 except does not consider taxes.)

Reference no: EM131900882

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