Question

Jamara has started a home party business that hosts parties and those attending paint signs. Jamara must pay $500 a year to be a representative for Paint A Sign. In addition, Jamara buys all the materials for the parties, including the metal base, the paints, brushes, stencils, and transfers. Currently, these items all add up to $10 on average. Jamara charges each participant $25 for each sign they make. For Jamara's Paint A Sign business, the $10 cost of materials is a: a. loss. b. total cost. c. fixed cost. d. variable cost.

Answer 1

Answer:

D. Variable Cost

Explanation:

Variable and Fixed Costs

A variable cost represents a cost that changes in proportion to the change in the quantity of goods that a business produces or the  services the business renders. The two costs that are usually considered normal in a business are the fixed cost (which are costs incurred irrespective of the changes in quantity of goods and services produced or rendered) and the variable cost.

For Jamara,

• $500 a year for Representative Fee is a fixed cost that is incurred whether Jamara gets participants for each sign or not
• $10 is basically incurred on metal base, the paints, brushes, stencils and transfers only when Jamara gets a participant. In order words, these items will only be incurred and increase only in proportion to the increase in the number of signs Jamara gets the order to make. This $10 is, therefore, a variable cost.