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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