Required:
By analyzing the data from the company's income statements, classify each of its expenses (including cost of goods sold) as either variable, fixed, or mixed.
Answer:
Variable expenses: they increase when the total amount of units sold increases, and decreases when the total amount of units sold decrease.
- Cost of goods sold (COGS)
- Shipping expenses
- Commissions: usually salespeople earn a fixed amount (fixed salary) and a variable amount based on sales commissions.
Fixed expenses: they do not depend on the total amount of units sold
- Advertising expense
- Insurance expense
- Depreciation expense
- Salaries: the fixed amount that salespeople earn (doesn't include sales commissions)
Explanation:
month 1 month 2 month 3
Cost of goods sold 375,000 412,500 450,000
Advertising expense 22,800 22,800 22,800
Shipping expense 46,000 48,800 51,600
Salaries and commissions 92,000 98,400 104,800
Insurance expense 6,050 6,050 6,050
Depreciation expense 24,700 24,700 24,700
