Alicia Is Considering Purchasing a Small Building with the Intent

question 13

Multiple Choice

Alicia is considering purchasing a small building with the intent of opening a craft and sewing center.The cost of the building is $49,000 and the cost to open the center is an additional $150,000.If the center is opened and no other competition is nearby the project will provide a hefty return.However,should the vacant building down the street be used for a competitive type entity,then the center could be a losing proposition.Assume the building is purchased but the opening of the center is delayed.This situation would best be described as ________ on a craft and sewing center.

• A)purchasing a call option
• B)writing a call option
• C)purchasing a put option
• D)writing a put option
• E)exercising a call on the land and writing a put

---

Definitions:

Direct Materials Quantity Variance

A measure of the difference between the actual quantity of materials used in production and the expected quantity, based on standards.

Total Direct Materials Cost Variance

The difference between the actual costs of direct materials used in production and the expected (or standard) costs.

Direct Materials Price

The cost of raw materials and components required for the manufacture of a product.

Direct Materials Quantity Variance

The difference between the actual quantity of materials used in production and the expected quantity, multiplied by the standard cost per unit.