Complete the following sentences by inserting the correct terms.

Over the short run, operating costs that vary directly with sales are calledfixed costs. However, over the long run, all costs arevariable .

Consider the cost structure of Universal Computer Corporation:

Review the traditional format income statement for Universal Computer Corporation that follows, and classify the indicated costs as being fixed, semivariable, or variable in nature.

Universal Computer Corporation Income Statement for the Year Ending December 31		Type of cost
Net sales	$5,986,545
Cost of goods sold:
Direct materials	1,676,233	Variable Cost
Direct labor	1,556,502	Variable Cost
Overhead expenses:
Rent expense	359,193	Fixed Cost
Electric utility expense	299,327	Semivariable Cost
Total cost of goods sold	3,891,255
Gross profit	2,095,290
Operating expenses:
Sales commission expense	239,462	Semivariable Cost
Depreciation on buildings and property	299,327	Variable Cost
Total operating expenses	538,789
Earnings before interest and taxes (EBIT)	1,556,501
Interest expense	299,327	Fixed Cost
Earnings before taxes (EBT)	1,257,174
Taxes (40%)	502,870	Variable Cost
Net income	$754,304
Preferred stock dividends	275,381	Fixed Cost
Earnings available to common shareholders	$478,923

Given your findings for Universal Computer Corporation above, construct an income statement using the revised format. For simplicitys sakeand for this portion of the problem onlyassume the following:

	Any semivariable cost is composed of a 50% variable-cost component and a 50% fixed-cost component. (Remember, in actuality, these percentages will differ depending on the source of the cost.)
	All of the companys tax expense consists of sales and income taxes, and thus, varies proportionately with Universals sales.

Universal Computer Corporation Income Statement for the Year Ending December 31
Net sales	$5,986,545
Less: Variable operating costs
Fixed operating costs
Total operating costs
Earnings before interest and taxes (EBIT)	1,556,501
Less: Fixed capital costs
Earnings before taxes (EBT)	1,257,174
Less: Income taxes (Variable, 40%)
Earnings after taxes (EAT)	$754,304
Less: Fixed capital costs (preferred stock dividends)
Earnings available to common shareholders
Earnings per share (EPS) 100,000 shares

1. The classification of fixed, variable, and semivariable costs Complete the following sentences by inserting the correct terms. fixed costs. However, over the long run, all costs are Over the short run, operating costs that vary directly with sales are called variable Consider the cost structure of Universal Computer Corporation: Review the traditional format income statement for Universal Computer Corporation that follows, and classify the indicated costs as being fixed, semivariable, or variable in nature. Universal Computer Corporation Income Statement for the Year Ending December 31 Type of cost Net sales $5,986,545 Cost of goods sold: Direct materials 1,676,233 Variable Cost Direct labor 1,556,502 Variable Cost Universal Computer Corporation Income Statement for the Year Ending December 31 Type of cost $5,986,545 1,676,233 Variable Cost Variable Cost 1,556,502 359,193 299,327 Fixed Cost Semivariable Cost 3,891,255 2,095,290 Net sales Cost of goods sold: Direct materials Direct labor Overhead expenses: Rent expense Electric utility expense Total cost of goods sold Gross profit Operating expenses: Sales commission expense Depreciation on buildings and property Total operating expenses Earnings before interest and taxes (EBIT) Interest expense Earnings before taxes (EBT) Taxes (40%) Net income Preferred stock dividends Earnings available to common shareholders 239,462 Semivariable Cost Variable Cost 299,327 538,789 Fixed Cost 1,556,501 299,327 1,257,174 502,870 Variable Cost $754,304 275,381 Fixed Cost $478,923 Any semivariable cost is composed of a 50% variable-cost component and a 50% fixed-cost component. (Remember, in actuality, these percentages will differ depending on the source of the cost.) All of the company's tax expense consists of sales and income taxes, and thus, varies proportionately with Universal's sales. Universal Computer Corporation Income Statement for the Year Ending December 31 Net sales $5,986,545 Less: Variable operating costs Fixed operating costs 1,556,501 1,257,174 Total operating costs Earnings before interest and taxes (EBIT) Less: Fixed capital costs Earnings before taxes (EBT) Less: Income taxes (Variable, 40%) Earnings after taxes (EAT) Less: Fixed capital costs (preferred stock dividends) Earnings available to common shareholders Earnings per share (EPS) 100,000 shares $754,304