A recently graduated business student decided to open a small Internet café serving a variety of unusual nonalcoholic beverages from around the world.He carefully used all the pricing formulas he learned in school and set a goal to break even the first six months and make a moderate profit for the next six months,at which time he would review his pricing strategies.Within a week after opening,every seat was filled and he had to replenish his beverage orders several times.At his six-month review,he was devastated to find that despite huge sales,he had actually lost money.He realized it wasn't his "math" that was wrong; he forgot to include monthly expenses such as toilet paper,paper towels,hand soap,and trash removal fees in his calculations.These costs should have appeared as __________ in his break-even analysis.
A)fixed costs
B)marginal costs
C)variable costs
D)overhead costs
E)sunk costs

Question

Quizplus · Accepted Answer

Toilet paper, paper towels, hand soap, and trash removal fees are all variable costs, as they vary with the level of sales or production. Fixed costs, such as rent or insurance, would be the same regardless of the level of sales, while marginal costs are the additional costs incurred with each additional unit sold or produced. Overhead costs generally include all the indirect costs of running a business, which could include fixed and variable costs, but are not specific enough to apply to just these expenses. Sunk costs are costs that have already been incurred and cannot be recovered or changed, such as the cost of purchasing equipment.

A Recently Graduated Business Student Decided to Open a Small