Lorenzo Is Deciding Between Two Banks for His Chequing Account

question 26

Multiple Choice

Lorenzo is deciding between two banks for his chequing account.Thrift Bank requires a minimum deposit of $100,charges a monthly fee of eight dollars,plus $0.50 per cheque.Merchants Bank also requires a minimum deposit of $100,charges no monthly fee,but charges $1.00 per cheque.How many cheques would Lorenzo need to write each month to make Thrift Bank less expensive to use than Merchants Bank?

• A)16 cheques
• B)8 cheques
• C)24 cheques
• D)12 cheques

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Definitions:

Absorption Costing

A method of product costing that incorporates all manufacturing costs, including both fixed and variable costs, in the price of a product.

Variable Costing

An accounting method that charges only variable costs to cost of goods sold and reports fixed costs separately as period costs.

Fixed Manufacturing Overhead

Costs associated with production that do not vary with the level of output, such as salaries of managers and rent for factory buildings.

Absorption Costing

An accounting method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed overhead—in the cost of a product.