Cost Classification: The Lees 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

Cost Classification

Classify each of the costs as a variable cost or fixed cost

Explain the importance of distinguishing between variable and fixed costs

Prepare a budgeted income statement

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