Intuit Inc. develops and sells software products for the...

Intuit Inc. develops and sells software products for the personal finance market, including popular titles such as Quicken ${ }^{\mathrm{B}}$ and TurboTax ${ }^{\mathrm{SS}}$. Classify each of the following costs and expenses for this company as either variable or fixed to the number of units produced and sold: a. Packaging costs b. Salaries of software developers c. Salaries of customer support personnel d. CDs e. Sales commissions f. Advertising g. Straight-line depreciation of computer equipment h. Shipping expenses i. Wages of telephone order assistants j. Property taxes on general offices k. User's guides 1. President's salary

Intuit Inc. develops and sells software products for the personal finance market, including popular titles such as Quicken ${ }^{\mathrm{B}}$ and TurboTax ${ }^{\mathrm{SS}}$. Classify each of the following costs and expenses for this company as either variable or fixed to the number of units produced and sold:
a. Packaging costs
b. Salaries of software developers
c. Salaries of customer support personnel
d. CDs
e. Sales commissions
f. Advertising
g. Straight-line depreciation of computer equipment
h. Shipping expenses
i. Wages of telephone order assistants
j. Property taxes on general offices
k. User's guides
1. President's salary

Key Concepts

Variable Costs

Variable costs change directly in proportion to the level of production or sales. These costs increase as more units are produced and decrease when fewer units are produced. Examples in managerial accounting include costs like packaging, CDs, shipping expenses, sales commissions, and user’s guides where each cost is incurred per unit sold.

Fixed Costs

Fixed costs remain constant regardless of the number of units produced or sold, at least within a relevant range. These expenses are not directly tied to production volume and include items such as salaries for key salaried positions, advertising, depreciation of equipment, and property taxes. They provide a stable baseline of expenses for the company, irrespective of output fluctuations.

Cost Classification

Cost classification involves categorizing expenses based on their behavior in relation to production volume. The two main classifications are variable costs, which vary with production levels, and fixed costs, which do not change with the level of production. This classification helps in budgeting, forecasting, and decision-making processes, enabling managers to understand how costs will react to changes in business activity.

Transcript

00:03 Hi there.

00:04 This is a three -part problem.

00:06 We'll start in part a by diagramming the data on this chart with adjusted gross income on the x -axis and itemized deductions on the y -axis.

00:18 Next, we'll use this data to find the mean value of x here, the mean value of the y's.

00:26 Then we'll take each instance of x, x sub i, minus the mean value of x.

00:31 Then we'll find in each instance of y minus the mean value of y.

00:35 We'll multiply these two together and add them up.

00:38 That'll be our numerator for our b sub 1 equation here.

00:45 Then we'll take each instance of x minus the mean value of x, square them, add them up.

00:52 That'll be our denominator.

00:53 This will tell us b sub 1 down here.

00:58 We'll use the equation given to find b not or b sub zero, and then that'll enable us to find our estimated regression equation here.

01:09 That'll be part b.

01:11 Then we'll move over here to part c using the estimated regression equation.

01:18 We will determine whether or not for adjusted gross income of 52 ,500, whether or not 20 ,400, is a reasonable itemized deduction as viewed by the irs.

01:32 So starting in part a, let's diagram our data that we have.

01:37 The first part is 22, 9 .6.

01:41 So let's call that here.

01:44 The next piece of data is 27, 9 .6.

01:48 Let's call that here.

01:50 Next is 32, 10 .1.

01:55 We'll say that's right about here.

01:59 Next is 48, 11 .1.

02:07 Next, 65, 13 .5, 85, 17 .7.

02:19 By the way, these are all in thousands, but we're just doing a, chopping off the trailing zeros to simplify things and make it a little quicker.

02:34 Last piece of data is 120 ,000 and 25 .5.

02:38 So we'll say that's right about here.

02:41 You can see the general trend here is we're looking for a linear trend and it's roughly like this.

02:48 So we know there's a positive correlation between adjusted gross income and the itemized deductions.

02:55 The equation, the regression equation is going to describe the line that goes here.

03:01 And i'll just say that if you can use a spreadsheet program on your computer, this will be much faster.

03:10 Year and easier.

03:11 So consider doing that.

03:13 Okay.

03:14 So the next part of this is the mean value of x.

03:18 So what we'll do is we'll take the x value for each of these points of data, add them up and divide by seven since there are seven points of data.

03:26 So 22, 27 plus 32, 27 plus 48, plus 65, plus 85, plus 120 divided by seven is 57.

03:37 Next, we'll take the mean value of the y's, 9 .6, 9 .6, 10 .1, and so forth, add them together and divide by 7 is 13 .9, rounding to the nearest 10th.

03:53 Now we'll take each instance of x sub i and subtract out the mean value of x.

04:00 So in other words, the first instance of x is 22, subtract the mean value of x is 57.

04:08 So 22 minus 57 is negative 35.

04:11 The next piece of data is 27 minus the mean value of x is 57.

04:22 So 27 minus 57 is negative 30.

04:28 And we'll do that for each value of x.

04:31 We'll subtract the mean value of x.

04:33 So 32 minus 57 is negative 25.

04:42 Negative 9.

04:45 65 minus 57 is 8.

04:50 85 minus 57 is 28.

04:56 And finally, 120 minus 57 is 63.