You Have Invested About $100,000 in a New (Hopefully)trendy Restaurant

question 21

Multiple Choice

You have invested about $100,000 in a new (hopefully) trendy restaurant in an urban location. These costs have gone to purchase the restaurant, prepay insurance for the following year, and purchase supplies for the restaurant. It will cost you an additional $10,000 per year to hire each waiter and waitress. (They earn tips which they get to keep.) Which of the following statements is most accurate?

• A)The $100,000 sum represents sunk costs, whereas the costs for waiters and waitresses is not sunk, but all of these costs would be considered accounting costs, but do not include all of the possible economic costs of operating the business.
• B)The $100,000 sum represents sunk costs, whereas the costs for waiters and waitresses is not sunk, but all of these costs would be considered accounting costs, and also include all of the possible economic costs of operating the business
• C)The $100,000 sum represents sunk costs and the costs for waiters and waitresses are sunk as well.
• D)The $100,000 sum represents sunk costs and all of the possible accounting costs as well.

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Definitions:

Direct Materials Quantity Variance

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

Direct Labor Time Variance

The difference between the actual time taken to complete a task and the standard time expected, multiplied by the labor rate.

Factory Overhead Volume Variance

The difference between the budgeted and actual volume of production, affecting the allocation of fixed manufacturing overhead costs to products.

Direct Materials Price Variance

A measure used in cost accounting that calculates the difference between the actual cost of direct materials and the standard cost expected to be incurred.