Suppose Your Expenses for This Term Are as Follows: Tuition

question 305

Multiple Choice

Suppose your expenses for this term are as follows: tuition: $7,000, room and board: $8,500, books and other educational supplies: $2,500.Further, during the term, you can only work part-time and earn $5,500 instead of your full-time salary of $20,000.What is the opportunity cost of going to college this term, assuming that your room and board expenses would be the same even if you did not go to college?

• A)$7,000
• B)$9,500
• C)$24,000
• D)$38,000

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Definitions:

High-low Method

A technique used in cost accounting to estimate variable and fixed costs based on the highest and lowest levels of activity.

Variable Cost

Costs that vary in proportion to the level of production or business activity, such as materials and direct labor.

Fixed Costs

Expenses that do not change with the volume of production or sales, such as rent, salaries, and insurance premiums.

Relevant Range

The range of activity within which assumptions made about cost behavior are valid. Beyond this range, fixed and variable cost patterns may change.