3. Cost Classification: 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 cost.

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.

a. Cost of goods sold of $35 per unit

b. 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.

c.Advertising fees = $3,000

d. Bank fees = $200

e. Phone/internet = $150 per month

f. Shipping = $3 per unit

g. Utilities = $100 per month

h. Office Supplies = $900

i. Conference Exhibitor Fee = $3000

j. Travel Expenses for Conference (e.g. airfare, meals, taxi) = $1200

4. 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.