Question

Part 1

As EEC's 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.

	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
22	Accounts Receivable, net	9,430
23	Prepaid Expenses	840
24	Land	2,760
25	Plant and Equipment	37,950
26	Cash 1/1/05	4,646
27	Accounts Payable	14,410
28	Interest Expense	28
29	Notes Payable, 10%	2,070
30	Bonds Payable 8%	8,510
31	Stockholders' Equity	31,510
32	Retained Earnings	6,670
33	Income tax rate	30%

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:Part 2

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

Answer 1

1)	Variable cost	-	These are the costs which changes based on the level of the units ( activity). As units changes, this cost will change.
	Fixed cost	-	These are the costs which doesn’t changes based on the level of the units ( activity). As units changes, this cost will not change.
	Mixed cost	-	This is a cost which contains both variable and fixed cost component . Variable part will change based on the level of activity but fixed part will remain the same.
2)
	1	Sales not on account	$29,440	Not a cost
	2	Sales on account	28,060	Not a cost
	3	Selling Expense	3,220	Mixed
	4	Administrative Expense	6,210	Fixed
	5	Supplies Factory	3,450	Variable
	6	Insurance Factory	920	Fixed
	7	Indirect Labor	6,900	Variable
	8	Factory Salaries	288	Fixed
	9	Factory Property Tax	173	Fixed
	10	Maintenance Expense Factory	2,001	Variable
	11	Depreciation Expense Factory	3,726	Fixed
	12	Utilities Factory	828	Mixed
	13	Purchases of Raw Materials	17,250	Variable
	14	Direct Labor Factory	3,450	Variable
	15	Raw Material Inventory, January 1	2,070	Not a cost
	16	Raw Material Inventory, December 31	1,380	Not a cost
	17	Work in Process Inventory, January 1	4,140	Not a cost
	18	Work in Process Inventory, December 31	2,300	Not a cost
	19	Finished Goods Inventory, January 1	5,980	Not a cost
	20	Finished Goods Inventory, December 31	4,830	Not a cost
	21	Bad Debt Expense	276	Variable
	22	Accounts Receivable, net	9,430	Not a cost
	23	Prepaid Expenses	840	Variable
	24	Land	2,760	Fixed
	25	Plant and Equipment	37,950	Fixed
	26	Cash 1/1/05	4,646	Not a cost
	27	Accounts Payable	14,410	Not a cost
	28	Interest Expense	28	Fixed
	29	Notes Payable, 10%	2,070	Not a cost
	30	Bonds Payable 8%	8,510	Not a cost
	31	Stockholders' Equity	31,510	Not a cost
	32	Retained Earnings	6,670	Not a cost
	33	Income tax rate	30%	Fixed