Refer to Scenario 9

question 102

Multiple Choice

Refer to Scenario 9.5 below to answer the question(s) that follow.
SCENARIO 9.5: Investors put up $520,000 to construct a building and purchase all equipment for a new restaurant. The investors expect to earn a minimum return of 10 percent on their investment. The restaurant is open 52 weeks per year and serves 900 meals per week. The fixed costs are spread over the 52 weeks (i.e. prorated weekly) . Included in the fixed costs is the 10% return to the investors and $1,000 per week in other fixed costs. Variable costs include $1,000 in weekly wages and $600 per week for materials, electricity, etc. The restaurant charges $3 on average per meal.
-Refer to Scenario 9.5. In the short run, if the restaurant shuts down, its losses will equal its ________ costs of ________.

• A) variable; $1,600
• B) total; $3,600
• C) fixed; $1,000
• D) fixed; $2,000

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Definitions:

Bankruptcy

The legal process by which the assets of a debtor are sold to pay off creditors so that the debtor can make a fresh start financially.

Operation Of Law Authority

Legal changes or transfers that occur automatically because of established laws, without the need for action by individuals.

Apparent Authority

The appearance or assumption of authority based on the actions or statements of the principal, leading others to believe someone has the authority to act on behalf of the principal.

Express Authority

The explicitly given power or permission to act on behalf of another party, particularly in a legal or business context.