IP(2) in 1200 wordsAs SAC's corporate business financial analyst, you will need to have a clear...

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IP(2) in 1200 wordsAs SAC'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. Review SAC's journal activity. Identify and define the variable, fixed, and mixed costs. Next, determine what affect a sales volume increase or decrease will have on unit fixed cost, unit variable cost, total fixed cost, and total variable costSparklin Automotive Company   Journal Entries 2006   "000" Omitted Activity   2 Sales on account 168,000 3 Selling Expense 1,560 4 Administrative Expense 3,000 5 Supplies Factory 3,500 6 Insurance Factory 800 7 Indirect Labor 16,000 8 Factory Salaries 12500 9 Factory Property Tax 7500 10 Maintenance Expense Factory 8700 11 Depreciation Expense Factory 1,600 12 Utilities Factory 3650 13 Purchases of Raw Materials 33,710 14 Direct Labor Factory 8,500 15 Raw Material Inventory, January XXXXXXXXXX 16 Raw Material Inventory, December XXXXXXXXXX 17 Work in Process Inventory, January 1 1,800 18 Work in Process Inventory, December 31 7,000 19 Finished Goods Inventory, January 1 25,360 20 Finished Goods Inventory, December 31 36,360 21 Bad Debt Expense 120 22 Accounts Receivable, net 9130 24 Land 1,000 25 Plant and Equipment 80,000 26 Cash 1/1/06 38,440 27 Accounts Payable 33,000 28 Interest Expense 19146 29 Notes Payable, 10% 15000 30 Bonds Payable 8% 150 31 Stockholders' Equity 109,200 32 Retained Earnings 4,000 33 Income tax rate 30%

Robert · Accepted Answer

Executive summary: 
In today’s economic environment, Management accounting is very important area of concern for 
every organization. Management accounting serves many purposes of an organization which 
includes setting up prices to beat the competitors and earn required return on the funds invested, 
managing and utilizing resources efficiently and effectively, to establish appropriate standards 
for managers and employees, providing supply chain management system etc. 
Among many roles of a senior management accountant one is to identify the various costs that 
are being incurred by an organization. In the present case we have to discuss various types of 
costs that are being incurred by Sparklin Automotive Company and categorize them as variable, 
fixed or mixed costs.
Let us begin with explaining what does “Variable costs”, “Fixed costs” and “Mixed costs” 
means. 
“Variable costs” are those costs which are directly related to the level of production at which 
entity is operating. Variable costs are also called as flexible costs as they fluctuate every time the 
level of production is changes. All variable costs are directly related to the level of production or 
sales of goods or service, all variable costs will vary directly depending upon the level of 
production or sales of goods or service as the case may be. Variable costs directly reflects the 
activity level of an organization, in case of those organizations which are working at higher 
activity level variable costs are higher as compared to those organizations which are working at 
lower activity level. Few examples of variable costs are cost of raw material, packaging cost, 
cost of labor, per unit overhead costs etc. All the variable costs are relevant cost, which means 
they are considered as relevant while taking any decision. 
"Fixed costs" are the costs which do not change due to change in the level of production or sale. 
All fixed costs remains regardless of the level of production or sale. Fixed costs are incurred in 
totality and do not fluctuate with the change in activity level of an organization. All fixed costs 
are not fixed for the lifetime, fixed also fluctuates in long run but they remain fixed for a shorter 
period of time which may be one year or so.

IP(2) in 1200 words As SAC'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....

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