Maddie Noticed That Many Students on Campus Had T-Shirts and Sweatshirts

question 53

Multiple Choice

Maddie noticed that many students on campus had t-shirts and sweatshirts with Greek organization letters or club names on them. Recognizing that there was a huge market for this attire, Maddie rented a store front and a silk screening machine to get into the t-shirt business. Maddie's rent is $1,000 a month, including utilities. The silk screen machine leases for $300 a month. Maddie can buy blank t-shirts for $6 each and sweatshirts for $10 each. Maddie calculated the cost of materials for the silk screening at $2 per unit. For pricing decisions, Maddie should consider her $300 lease on the machine as a:

• A) fixed cost.
• B) variable cost.
• C) semi-variable cost.
• D) loss.

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Definitions:

Income Statement Accounts

Accounts found on the income statement, which report a company’s financial performance over a specific period, including revenues, expenses, gains, and losses.

Temporary Accounts

Accounts in accounting that are used to track transactions within a financial period, which are then transferred to permanent accounts at the end of the period.

Interest Expense

The cost incurred by an entity for borrowed funds, which may include the cost of bonds, loans, convertible debt, and lines of credit.

Interest Payable

The amount of interest expense that has been incurred during a period but not yet paid to creditors.