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 the $2 cost of silk screening material as a:
A) variable cost.
B) fixed cost.
C) deductible expense.
D) marginal expense.

Question

Quizplus · Accepted Answer

The $2 cost of silk screening material varies with the number of t-shirts and sweatshirts produced, making it a variable cost. Fixed costs, like the rent and machine lease, do not change with the volume of production.

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