Jamara Has Started a Home Party Business That Hosts Parties

question 116

Multiple Choice

Jamara has started a home party business that hosts parties and those attending paint signs. Jamara must pay $500 a year to be a representative for Paint A Sign. In addition, Jamara buys all the materials for the parties, including the metal base, the paints, brushes, stencils, and transfers. Currently, these items all add up to $10 on average. Jamara charges each participant $25 for each sign they make. For Jamara's Paint A Sign business, the $500 is a fixed cost per year. Which of the following is true?

• A) Jamara will pay the Paint A Sign company $500 regardless of the number of parties she hosts.
• B) Jamara will have to pay Paint A Sign $500 for every party she hosts.
• C) Jamara will lose money if she has less than 100 participants a year.
• D) Jamara's annual fixed costs will be higher than her variable costs regardless of the number of participants.

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Definitions:

Tax Account

An account designated for the accumulation and payment of taxes owed by an individual or organization.

Net Working Capital

The gap between a firm's present assets and liabilities, showcasing its immediate fiscal stability and the effectiveness of its operations.

Incremental Cash Flow

The additional cash flow a company receives from undertaking a new project, emphasizing the difference in the company's cash flows with and without the project.

Pro Forma Statements

Financial statements that show how the actual statements would have looked on a certain date if a specific financial transaction had occurred earlier.