· 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.)