Multiple Choice
Which of the following is true about accounting careers?
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1. Introduction to Accounting
Types of Accounting
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Rent and insurance are examples of what type of cost?
A
Direct costs
B
Variable costs
C
Opportunity costs
D
Fixed costs
Verified step by step guidance1
Understand the concept of fixed costs: Fixed costs are expenses that do not change with the level of production or sales. They remain constant over a specific period, regardless of business activity.
Identify examples of fixed costs: Rent and insurance are typical examples because they are recurring expenses that do not fluctuate based on production or sales levels.
Compare fixed costs with other types of costs: Direct costs are directly tied to production (e.g., raw materials), variable costs change with production levels (e.g., labor or utilities), and opportunity costs represent the potential benefits lost when choosing one option over another.
Analyze why rent and insurance are fixed costs: Rent is a contractual obligation that remains constant over the lease term, and insurance premiums are typically fixed for the policy period, making them independent of business activity.
Conclude that rent and insurance are fixed costs because they do not vary with production or sales levels, unlike variable or direct costs.
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