Financial Statement

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


Net Present Value:

The Lees are considering adding a new piece of equipment that will speed

up the process of building the bobble heads. The cost of the piece of equipment is $42000. It is

expected that the new piece of equipment will lead to cash flows of $17000, $29000, and

$40000 over the next 3 years. If the appropriate discount rate is 12%, what is the NPV of this

investment? Explain the findings

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