Imagine Tom's Annual Salary as an Assistant Store Manager Is

question 32

Multiple Choice

Imagine Tom's annual salary as an assistant store manager is $30,000. He also owns a building that he rents out, earning $10,000 annually, and he has financial assets that generate $1,000 per year in interest. One day, after deciding to be his own boss, he quits his job, evicts his tenants, and uses his financial assets to establish a bicycle repair shop in the building he owns. To run the business, he outlays $15,000 in cash to cover all the costs involved with running the business and earns revenues of $50,000. Which of the following statements is true?

• A)Tom has an opportunity cost of $41,000.
• B)Tom earns an accounting profit of $35,000.
• C)Tom experiences an economic loss of $6,000.
• D)All of these are correct.

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Definitions:

Activity Cost Pool

A collection of overhead costs attributed to particular activities, used in activity-based costing to allocate costs more accurately to products or services.

Activity-Based Costing

A costing method that assigns costs to products and services based on the activities and resources that go into producing them, aiming to provide more accurate cost information.

Overhead

General business expenses that are not directly tied to specific products or services but are necessary for the overall operation of a business, such as rent, utilities, and administrative costs.

Activity-Based Costing

A costing methodology that assigns overhead and indirect costs to specific activities, improving the accuracy of product and service costing.