Refer to Scenario 9.6 below to answer the question(s) that follow.
SCENARIO 9.6: Celeste borrowed $40,000 from her brother to open a car wash. She pays her brother a 5% yearly return on the money he lent her. Her other yearly fixed costs equal $18,000. Her variable costs equal $40,000. In her first year, Amy sold 40,000 car washes at a price of $2.50 per car wash.
-Refer to Scenario 9.6. Celeste's total fixed costs equal
A) $2,000.
B) $18,000.
C) $20,000.
D) $22,000.

Question

Quizplus · Accepted Answer

Celeste's total fixed costs include the yearly fixed costs of $18,000 and the 5% yearly return on the $40,000 borrowed from her brother. The 5% return on $40,000 is $2,000 ($40,000 * 0.05 = $2,000). Therefore, her total fixed costs are $18,000 + $2,000 = $20,000.