Grear Rafting Analysis

Grear Rafting Company is the dream business of Ms. Grear, and has been in operation for one year, and according to the income statement she has provided, she is losing money. Because of her dream to maintain this rafting business, she has come to us for help to get her out of the red. In order to do this, we need to explain variable and fixed costs, period and product costs, and rewrite Grear Rafting’s income statement. Grear Rafting’s income statements is provided below.

Grear Rafting Company
Income Statement
For the Year Ended December 31, 2008 Revenue $1,048,000 Rental Cost of Rafts and Camping Equipment (208,600) Meals Provided to Rafters (314,400) Advertising Expenses (50,000) Compensation Paid to Guides (471,600) Salary of Office Manager (16,500) T-shirts and Hats Provided to Rafters (31,440) Office Utility Expense (3,850) Net Income (Loss) $(48,390) (During the year, 1,048 rafters were served.) (HBU, 2010)

Variable Costs The book definition of variable costs is costs that, in total, vary in direct proportion to changes in output. In other words, the total increases as output increases and the total decreases as output decreases (Mowen, 2009, p.72). For example, a hot dog stand’s variable cost for hot dogs would increase with sales, because he sold more hot dogs, and the variable cost would decrease, because he sold less hot dogs. With this in mind, the costs that are dependent upon the