March 5, 2012
SAC Journal Entries 2
Fixed costs are those costs that do not vary with level of production and sales. Some examples of fixed costs include, but not limited to, rent, depreciation, salaries and wages, property tax, insurance and interest expense. Fixed costs are for the most part, time related and not volume related. Fixed costs do not change in proportion to the activities of the business within the relevant period or scale of production.
Variable costs, on the other hand. Are costs which directly vary with the level of production and sales revenue, when the material, labor and overhead varies directly to the level of production. Examples of variable costs are raw material, energy use, wages, distribution costs .Variable costs is sometimes referred to as unit costs and marginal costs.
Mixed costs consist of both fixed and variable component of costs, and also contain both fixed costs and variable costs. Mixed costs should be bifurcated in to fixed costs and variable costs in order to receive an analysis of costs for decision making.
Journal entries of Sparkling Automotive Company.
- Selling expenses. It is the mixed cost. Selling expenses consists of salaries paid to the sales manager, commission paid to the sales manager, sales promotion expenses. Here, the salaries which are paid to the sales personnel on the monthly basis are the fixed cost. The sales commission which is paid on the basis of the units of sale is variable cost. Likewise, promotional expenditure incurred on the monthly basis is the fixed cost and promotional expenditure incurred on the basis of units of sale is variable expenditure.
SAC Journal Entries 3
- Administrative expenses: It is fixed cost. Fixed cost won’t change depending upon the units produced. But it has to be incurred irrespective of the level of production or...