Biotech SOP's Finance Department is about to report to its board of directors that SOP has become increasingly saddled with the monthly lease (rental costs) of their building. The department is recommending that SOP either build or purchase a new building, which is more cost-efficient than continued leasing. The department would classify lease payment as a ____________________. sunk cost. average cost. fixed cost. marginal cost. semi-variable cost. variable cost.
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Lease payments for a building are typically a set amount paid regularly (e.g., monthly, annually) regardless of the level of production or sales of the company. This characteristic is key to classifying the cost. Show more…
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Mountainburg Industries has developed two new products but has only enough plant capacity to introduce one product during the current year. The following data will assist management in deciding which product should be selected. Mountainburg's fixed overhead includes rent and utilities, equipment depreciation, and supervisory salaries. Selling and administrative expenses are not allocated to individual products. The total overhead cost of $27 for Mountainburg's Product W is a Variable cost. Opportunity cost. Mixed cost. Sunk cost. Question 8 of 10
Akash M.
Rent and insurance are examples of what type of cost?
Haricharan G.
Sunk and opportunity costs for decision-making. Mrs Johnston has taken out a lease on a shop for a down payment of ÂŁ5000. Additionally, the rent under the lease amounts to ÂŁ5000 per annum. If the lease is cancelled, the initial payment of ÂŁ5000 is forfeit. Mrs Johnston plans to use the shop for the sale of clothing, and has estimated operations for the next 12 months as follows: (ÂŁ) (ÂŁ) Sales 115 000 Less Value-added tax (VAT) 15 000 Sales less VAT 100 000 Cost of goods sold 50 000 Wages and wage related costs 12 000 Rent including down payment 10 000 Rates, heating, lighting and insurance 13 000 Audit, legal and general expenses 2 000 87 000 Net profit before tax 13 000 In the figures, no provision has been made for the cost of Mrs Johnston but it is estimated that one half of her time will be devoted to the business. She is undecided whether to continue with her plans, because she knows that she can sublet the shop to a friend for a monthly rent of ÂŁ550 if she does not use the shop herself. You are required to: (a) (i) explain and identify the 'sunk' and 'opportunity' costs in the situation depicted above; (ii) state what decision Mrs Johnston should make according to the information given, supporting your conclusion with a financial statement;
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