You have invested about $100,000 in a new (hopefully)trendy restaurant in an urban location. These costs have gone to purchase the restaurant, prepay insurance for the following year, and purchase supplies for the restaurant. It will cost you an additional $10,000 per year to hire each waiter and waitress. (They earn tips which they get to keep.)Which of the following statements is most accurate?
A)The $100,000 sum represents sunk costs, whereas the costs for waiters and waitresses is not sunk, but all of these costs would be considered accounting costs, but do not include all of the possible economic costs of operating the business.
B)The $100,000 sum represents sunk costs, whereas the costs for waiters and waitresses is not sunk, but all of these costs would be considered accounting costs, and also include all of the possible economic costs of operating the business
C)The $100,000 sum represents sunk costs and the costs for waiters and waitresses are sunk as well.
D)The $100,000 sum represents sunk costs and all of the possible accounting costs as well.

Question

Quizplus · Accepted Answer

The $100,000 represents sunk costs, which are costs that cannot be recovered if the restaurant fails. The costs for waiters and waitresses are not sunk, as they are ongoing costs to operate the business. However, all of these costs would be considered accounting costs, which are the costs of doing business that are recorded in the accounting records. It's important to note that these accounting costs do not include all possible economic costs of operating the business, such as opportunity costs. The $100,000 represents sunk costs as it has already been spent and cannot be recovered. The costs for waiters and waitresses are not sunk as they are variable costs that will depend on the business's level of activity. However, they are still accounting costs as they are expenses that can be classified and measured. While these costs are important to consider in operating the business, they do not include all possible economic costs such as opportunity costs.

You Have Invested About $100,000 in a New (Hopefully)trendy Restaurant