Question

3 Mark is an engineer who has designed a telecommunications device. He is convinced that there is a big potential market for the device. Accordingly, he has decided to quit his present job and start a company to manufacture and market the device.

Rent on the administrative office space is:

a period cost

a product cost

a variable cost

an opportunity cost    

4. A merchandising company typically will have a high proportion of which type of cost in its cost structure?

• Mixed.

• Step-variable.

• Fixed.

• Variable.

Answer 1

3

Rent on the administrative office space is a period cost.

Period costs are non-manufacturing costs and are expensed in the period in which they are incurred.

Rent on the administrative office space is a selling and administrative cost and thus a period cost.

Option A a period cost is correct

4

A merchandising company typically will have a high proportion of Variable cost in its cost structure.

Cost of Sales is the highest proportion of cost for a merchandising company which is a variable cost.

Option D Variable is correct