Report on Fixed and Variable Cost Analysis for an E-Juice Business

This report analyzes the fixed and variable costs associated with an e-juice company. It differentiates between costs based on their nature, categorizing expenses as either fixed or variable. Fixed costs, such as salaries, advertising, shipping, rent, and utilities, are those incurred regardless of production levels. Variable costs, primarily the cost of raw materials, are directly tied to the volume of goods produced and sold. The analysis includes the rationale behind classifying specific expenses, and the report allocates fixed costs using the traditional costing method based on sales value. The report explains why certain costs are considered fixed, such as employee salaries and advertising expenses, regardless of production levels. It also provides a clear distinction between fixed and variable costs.

E- Juice Analysis
Introduction
The analysis deals with segregation of expenses under the category fixed and variable based on the
nature of cost and devising rationale for such treatment. The analysis pertains to an e-juice company
which sells three variant of juices mainly i.e. Iced Milk Coaco, Iced Red Apple E-Juice and Mouse
Chief E-Juice. The manufacturing of the said products involves certain expenditure which can be
categorised under variable and fixed. The report presents the same.
Analysis
Fixed Cost: The cost may be defined as expense which shall be incurred irrespective of the level of
goods and services produced. Example of such expenses include rent, salary to permanent employees
etc.
Variable Cost: The cost may be defined as expense which shall vary with the level of goods and
services produced. Example of such expenses include raw material, variable component of electricity,
temporary labour etc.
In the current case of e-juice, only the cost of material has been considered as variable as the said cost
is directly dependent on the total quantity of goods sold and produced. Also, there shall be no cost of
raw material of no good/ juice is produced and sold during the year
Further, the following cost has been treated as fixed:
(a) Sales/ Wages: The said cost has been treated as fixed as employees are on a monthly payroll and
pay shall be made irrespective of production and sales level;
(b) Advertising: The said cost has been treated as fixed as cost for advertisement shall be incurred
irrespective of production and sales level;
(c) Shipping : The said cost has been treated as fixed as cost for shipping shall be incurred
irrespective of production and sales level;
(d) Rent: The said cost has been treated as fixed as rent payment shall be incurred irrespective of
production and sales level;
(e) Phone and internet: The said cost has been treated as fixed as phone and internet expenses shall
be incurred irrespective of production and sales level;
(f) Electricity and Water: The said cost has been treated as fixed as the said expense shall be
incurred irrespective of level of activity.
(g) Similar treatment has been meted out with administrative and other related expense.
Further, fixed cost has been allocated on the basis of sales value under traditional costing method.