Question

Please complete in Excel document with correct formulas and attach.

Cost Classification: The Lee’s have provided you with the following costs and relevant information that are assumed for year 20XY.

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.

Cost of goods sold of $35 per unit

Labor = $400/month

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.

Advertising fees = $3,000

Bank fees = $200

Phone/internet = $150 per month

Shipping = $3 per unit

Utilities = $100 per month

Office Supplies = $900

Conference Exhibitor Fee = $3000

Travel Expenses for Conference (e.g. airfare, meals, taxi) = $1200

Please complete in Excel document and attach.

Answer 1

(A) Classify each of the costs as Variable and fixed costs
Cost of Goods sold	Variable cost
labour per Month	Fixed
Part time Employee	Fixed
Advertising Fee	Fixed
bank fee	Fixed
Phone / Interenet	Fixed
Shipping	Variable cost
Utilities	Fixed
Office supplies	Fixed
Conference Exhibitor Fee	Fixed
Total travel for conference	Fixed
(B)    Fixed cost are period costs. These are fixed and does not change inrespect of Volume of products produced or services offered. Varaible costs are the costs that are change along with volume of the Products. Once we know about fixed and variable costs, then these are helpful to find out how many products need to be produced and sold to reach the Breakeven pint of the business. to know the Break even point we need to Differntiate the Costs as variable and Fixed costs. Break even point in Units =   Fixed Cost /(Sale price - variable cost per unit) . its also heps to reach a targeted profit ,   For targeted profit   Units need to be Produced = (Fixed Cost + Target profit ) / (Sale price - varaible cost per unit)
(C ) Budgeted income Statement
Particulars	Amount In $	Amount In $
Sales              $85*600		51000
less:variable costs
Cost of Goods sold   600*$35	21000
Shipping Costs    $3 *600	1800	22800
Contribution		28200
Less: Fixed costs
labour per Month    $400*12	4800
Advertising Fee	3000
part time employee $10* 40*12	4800
bank fee	200
Phone / Interenet   $150*12	1800
Utilities     $100*12	1200
Office supplies	900
Conference Exhibitor Fee	3000
Total travel for conference	1200	20900
Net Income before taxes		7300
less: Income tax   $11700*28%		2044
Net income After taxes		5256
Break Even Analysis
Break even points = Fixed cost / Contribution per unit = $16100/(85-38) =342.55
Contribution margin per Unit =Selling price per unit - variable cost per unit =$85-$35-$3=$47
Total Contribution margin =units Sold * Contribution per Unit =600*$47 =$28200