Maddie noticed that many students on campus had t-shirts and sweatshirts with Greek organization letters or club names on them. Recognizing that there was a huge market for this attire, Maddie rented a store front and a silk screening machine to get into the t-shirt business. Maddie's rent is $1,000 a month, including utilities. The silk screen machine leases for $300 a month. Maddie can buy blank t-shirts for $6 each and sweatshirts for $10 each. Maddie calculated the cost of materials for the silk screening at $2 per unit. For pricing decisions, Maddie should consider her $1,000 rent as a:
A) fixed cost.
B) variable cost.
C) semi-variable cost.
D) loss.

Question

Quizplus · Accepted Answer

Fixed costs are expenses that do not change with the amount of product produced or sold, and Maddie's $1,000 rent fits this description as it remains constant regardless of her sales volume.

Maddie Noticed That Many Students on Campus Had T-Shirts and Sweatshirts