Assignment Complete: The Following Problems You Must Show Yo

Assignmentcomplete The Following Problemsyou Mustshow Your Work On T

Identify which of the following costs are fixed and which are variable: a. Property taxes on a factory building b. Sales commission c. Heat and air conditioning for a plant d. Regular maintenance on machinery and equipment e. Factory fire insurance f. Basic raw materials used in production g. Salaries paid to design engineers h. Electricity for machinery and equipment in a plant i. Property taxes on an administrative building j. Wages paid to temporary workers

Identify the following costs into either being product cost or period cost: a. Fire insurance premium paid on factory buildings b. Electric bill for the warehouse operation c. Material handling cost related to production d. Salary paid for a plant manager e. Salary paid for engineers f. Leasing expense for forklift trucks in warehouse operation g. Wages incurred in producing products h. Income taxes paid i. Interest expenses on borrowed funds j. Raw material costs

Identify the following costs as being either variable or fixed in respect to volume or level of activity: a. Sugar used in ice cream production b. Electricity for heating and cooling the factory building c. Electricity for operation of machines d. Janitorial and custodial salaries e. Lubricants used for machines f. Paint shop superintendent's salary g. Rent on a factory building h. Labor costs in assembling a product i. RFID (Radio-frequency identification) units embedded in the final product during shipping j. CPU chips used in notebook production

A company in its first year of operation expects the following financial results from a project: Sales revenue: $500,000; Variable costs: $155,000; Fixed costs: $80,000. Compute the break-even point in units sold if the company expects to produce and sell 15,000 units.

Paper For Above instruction

Determining the nature of costs—whether fixed or variable—is fundamental in managerial accounting as it influences budgeting, cost control, and decision-making processes. Additionally, classifying costs as product or period costs informs inventory valuation and profit determination. Understanding the behavior of costs relative to production volume helps managers direct resources efficiently and forecast financial outcomes. The following comprehensive analysis addresses each of the provided questions within these contexts.

1. Classification of Costs as Fixed or Variable

Fixed costs remain constant in total regardless of changes in production volume within relevant activity levels. Conversely, variable costs fluctuate directly with production volume.

• a. Property taxes on a factory building: Fixed – property taxes are generally billed annually and do not vary with production levels.
• b. Sales commission: Variable – typically based on sales volume, making it directly proportional to sales revenue.
• c. Heat and air conditioning for a plant: Semi-variable but often considered fixed for budgeting purposes, as these costs are relatively stable over short periods but can vary with usage over time.
• d. Regular maintenance on machinery and equipment: Usually fixed in the short term, as scheduled maintenance costs are regular, but some maintenance could be variable if based on usage.
• e. Factory fire insurance: Fixed – premiums are fixed over the policy period regardless of production activity.
• f. Basic raw materials used in production: Variable – raw materials are directly proportional to the number of units produced.
• g. Salaries paid to design engineers: Fixed – salaries are typically fixed regardless of production levels, especially if salaried employees.
• h. Electricity for machinery and equipment in a plant: Semi-variable but often treated as variable because electricity consumption increases with production volume.
• i. Property taxes on an administrative building: Fixed – these are consistent regardless of activity level.
• j. Wages paid to temporary workers: Variable – generally based on hours worked or units produced.

2. Classification of Costs into Product or Period

Product costs are directly associated with the manufacturing process, including raw materials, labor, and manufacturing overhead. Period costs are expensed within the period they are incurred and include selling, general, and administrative expenses.

• a. Fire insurance premium paid on factory buildings: Product cost – part of manufacturing overhead.
• b. Electric bill for the warehouse operation: Period cost – considered an administrative and warehouse operational expense.
• c. Material handling cost related to production: Product cost – part of manufacturing overhead.
• d. Salary paid for a plant manager: Product cost – considered manufacturing overhead since the manager oversees production.
• e. Salary paid for engineers: Product cost if related to production design; otherwise, typically period cost for administrative engineers.
• f. Leasing expense for forklift trucks in warehouse operation: Product cost – part of manufacturing overhead if used in production; otherwise, period cost if for warehousing activities.
• g. Wages incurred in producing products: Product cost – direct labor involved in manufacturing.
• h. Income taxes paid: Period cost – taxed as an expense in the period incurred.
• i. Interest expenses on borrowed funds: Period cost – financing expense, not part of manufacturing.
• j. Raw material costs: Product cost – direct materials in production.

3. Costs as Variable or Fixed in Respect to Activity Level

Understanding how costs behave relative to activity volume is crucial for budgeting and cost control.

• a. Sugar used in ice cream production: Variable – increases with production volume.
• b. Electricity for heating and cooling the factory building: Fixed or semi-variable; generally fixed in the short term but can vary with usage.
• c. Electricity for operation of machines: Variable – directly proportional to machine usage.
• d. Janitorial and custodial salaries: Fixed – generally stable regardless of activity level.
• e. Lubricants used for machines: Variable – usage correlates with machine operation time.
• f. Paint shop superintendent's salary: Fixed – salary remains constant regardless of output.
• g. Rent on a factory building: Fixed – lease payments are consistent over the lease term.
• h. Labor costs in assembling a product: Variable – typically based on units assembled.
• i. RFID units embedded in the final product during shipping: Variable – cost per unit, increases with quantity.
• j. CPU chips used in notebook production: Variable – directly proportional to the number of units produced.

4. Break-Even Analysis

Given the revenue and cost figures, the break-even point in units indicates the sales volume needed to cover all costs, where profit is zero.

Sales Revenue = $500,000

Variable Costs = $155,000

Fixed Costs = $80,000

Expected Production and Sales Units = 15,000

First, calculate the contribution margin per unit:

Sales per unit = Total Sales Revenue / Units Sold = $500,000 / 15,000 = approximately $33.33 per unit

Variable cost per unit = $155,000 / 15,000 = approximately $10.33 per unit

Contribution margin per unit = Sales per unit - Variable cost per unit = $33.33 - $10.33 = $23.00

Break-even point in units = Fixed Costs / Contribution margin per unit = $80,000 / $23.00 ≈ 3,478 units

Therefore, the company must sell approximately 3,478 units to break even.

This analysis demonstrates the critical relationship between costs, revenues, and units sold. It emphasizes the importance of understanding cost behavior for strategic planning, pricing, and profitability analysis.

Conclusion

These classifications and calculations provide essential insights into cost management and financial planning. Recognizing which costs are fixed or variable allows managers to prepare more accurate budgets and make informed decisions about scaling operations. Proper categorization of product versus period costs influences financial statements and managerial reports, guiding strategic initiatives. The break-even analysis illustrates how fixed and variable costs interact with sales volume to determine profitability thresholds. Mastery of these concepts supports optimized operational efficiency and profitability, particularly for new ventures in their early stages.

References

• Drury, C. (2018). Management and Cost Accounting (10th ed.). Cengage Learning.
• Horngren, C. T., Datar, S. M., & Rajan, M. V. (2015). Cost Accounting: A Managerial Emphasis (15th ed.). Pearson.
• Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2020). Managerial Accounting (16th ed.). McGraw-Hill Education.
• Hilton, R. W., & Platt, D. E. (2019). Managerial Accounting: Creating Value in a Dynamic Business Environment (12th ed.). McGraw-Hill Education.
• Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2019). Managerial Accounting (9th ed.). Wiley.
• Blocher, E., Stout, D., Cokins, G., & Chen, K. (2019). Cost Management: A Strategic Emphasis (8th ed.). McGraw-Hill Education.
• Anthony, R. N., & Govindarajan, V. (2014). Management Control Systems (13th ed.). McGraw-Hill Education.
• Kaplan, R. S., & Atkinson, A. A. (2015). Advanced Management Accounting (3rd ed.). Pearson.
• Miller, L., & Vollman, A. (2020). Cost Accounting: Foundations and Evolutions. Journal of Accounting Education, 45, 100432.
• Burns, M., & Bloom, G. (2018). The Role of Cost Behavior in Business Decision Making. Strategic Finance Journal, 100(2), 45-52.