Interest Is Considered A(n)

question 20

Multiple Choice

Interest is considered a(n)

• A) form of depreciation if the cost of borrowing increases.
• B) implicit cost when the firm owner uses his or her own funds to buy capital.
• C) explicit cost when the firm pays a bank to borrow money.
• D) return to entrepreneurship if the firm owner uses his or her own funds to buy capital.
• E) Both answers A and B are true.

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Definitions:

Purchased Materials

Refers to the raw materials bought by a company to be used in production or merchandise bought for resale.

Manufacturing Department

A specific division within a company that is responsible for the production of goods.

Period Costs

Those costs that are used up in generating revenue during the current period and that are not involved in manufacturing a product, such as selling, general, and administrative expenses.

Production Requirements

The specific quantities and specifications of products that need to be produced within a certain timeframe to meet demand.