Stu Owns an Ice Cream Parlor That Is Usually Closed

question 100

Multiple Choice

Stu owns an ice cream parlor that is usually closed during the winter. This winter, however, Stu is considering opening his business in February instead of March. If Stu opens his store in February, he will earn total revenue of $4,000 for the month, incurring variable costs of $3,500 and fixed costs of $1,500. If the store remains closed during February, Stu will earn no revenues and incur fixed costs of $1,500. Stu should:

• A) stay closed in February because he will lose $1,000 if he opens.
• B) stay closed in February because the $500 of operating profit is insufficient to cover the $1,500 of fixed costs.
• C) open in February because the $4,000 of total revenue exceeds the $1,500 of fixed costs.
• D) open in February because the $4,000 of total revenue exceeds the $3,500 of variable costs.

Recognize the proper accounting treatment for operational expenses like rental payments.

Comprehend the governance and structural organization of international financial reporting standards and bodies.

Understand the objectives and guidelines provided by the Conceptual Framework for Financial Reporting.

Identify what constitutes income and the exclusion of owner contributions from income.

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Definitions:

Performance/Satisfaction Relationship

The correlation between an individual's job performance and their level of job satisfaction, indicating how one may affect the other.

Allocating Rewards

Allocating rewards involves distributing incentives or benefits to individuals or groups based on their performance, contribution, or needs.

Impact On Us

The effects or consequences of an event, action, or decision on individuals or groups.

Guilt

A feeling of having done something wrong or failed in an obligation.