Question

As corporate business financial analyst, you will need to have a clear understanding of the different types of costs (variable, fixed, and mixed) that the company carries. Complete the following for this assignment:

• Review EEC's journal activity.
• Define and identify its variable, fixed, and mixed costs.
• Determine what affect a sales volume increase or decrease will have on unit fixed cost, unit variable cost, total fixed cost, and total variable cost.

Part 2 As an EEC corporate business financial analyst, you must have an expert understanding of the various costing methods. Select 1 of the following costing concepts:

• Full costing or absorption costing
• Variable costing
• Target costing
• Life cycle costing
• Activity-based costing

	Activity
1	Sales not on account	$29,440
2	Sales on account	28,060
3	Selling Expense	3,220
4	Administrative Expense	6,210
5	Supplies Factory	3,450
6	Insurance Factory	920
7	Indirect Labor	6,900
8	Factory Salaries	288
9	Factory Property Tax	173
10	Maintenance Expense Factory	2,001
11	Depreciation Expense Factory	3,726
12	Utilities Factory	828
13	Purchases of Raw Materials	17,250
14	Direct Labor Factory	3,450
15	Raw Material Inventory, January 1	2,070
16	Raw Material Inventory, December 31	1,380
17	Work in Process Inventory, January 1	4,140
18	Work in Process Inventory, December 31	2,300
19	Finished Goods Inventory, January 1	5,980
20	Finished Goods Inventory, December 31	4,830
21	Bad Debt Expense	276

Answer 1

1)

Fixed cost- Fixed costs are that costs that remained unchanged no matter how much the volume of sales is. They are the fixed costs that the unit need to incurr even if there is no production for a period.

Variable costs- Variable costs are that kind of costs that changes with the change in the volume of sales. It means they are directly related with the output.

Mixed costs- They are the mixture of fixed and variable element in them.

	Activity	Nature
1	Sales not on account	Income
2	Sales on account	Income
3	Selling Expense	Variable costs
4	Administrative Expense	Fixed/Mixed based on its activity sometimes
5	Supplies Factory	Variable costs
6	Insurance Factory	Variable costs
7	Indirect Labor	Fixed/Variable ( Depends whether the wages are fixed or as a percentage of sales)
8	Factory Salaries	Mixed costs(Wages for their regular hours are fixed costs and overtime is variable costs)
9	Factory Property Tax	Fixed costs
10	Maintenance Expense Factory	Variable costs
11	Depreciation Expense Factory	Fixed costs
12	Utilities Factory	Variable costs
13	Purchases of Raw Materials	Variable costs
14	Direct Labor Factory	Variable costs
15	Raw Material Inventory, January 1	It is inventory and not cost
16	Raw Material Inventory, December 31	It is inventory and not cost
17	Work in Process Inventory, January 1	It is inventory and not cost
18	Work in Process Inventory, December 31	It is inventory and not cost
19	Finished Goods Inventory, January 1	It is inventory and not cost
20	Finished Goods Inventory, December 31	It is inventory and not cost
21	Bad Debt Expense	Variable costs

If there in an increase or decrease in sales output the the fixed costs and variable costs would be affected in the given manner,

Fixed costs- As discussed before there is no relation between the fixed costs and output of sales so we can say that even if there is increase or decrease in sales the fixed costs in total or per unit will not change instead it will remain constant.

Variable costs-Variable costs are related with the output of sales so if there is increase or decrease in output of sales the variable costs in total and per unit will also increase or decrease in the same direction as sales output.

2) Full costing or absorption costing- This method is based on the concept that every Costs including manufacturing costs should be included in an overall cost of valuing a finished product.