On February 1, John Signed a Contract to Pay Janet

question 8

Multiple Choice

On February 1, John signed a contract to pay Janet $4,500 plus interest on April 2 and $5,500 plus interest on July 31. Both payments carried a 6.5% interest annually. Janet then sold both contracts to Fred on May 1 at a rate of 4.5% annually. Determine how much she received.

• A) $10,145.20
• B) $10,300.18
• C) $10,451.07
• D) $10,618.30
• E) $11,863.54

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Definitions:

Period Cost

Expenses that are not tied directly to product production and are expensed in the period they are incurred.

Absorption Costing

A method of accounting which integrates all costs related to manufacturing, from direct materials and labor to variable and fixed overhead, into the product’s pricing.

Absorption Costing

A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed overheads—in the cost of a product.

Variable Costing Income Statement

An income statement format that deducts only variable costs from sales to compute contribution margin, followed by the deduction of fixed costs to determine net income.