Question

Ray estimates that the fixed costs associated with opening a new bank branch are $500,000. He expects the branch to attract 1,000 new customer accounts in the first year, each of which will cost $50 per year to service. He also expects to generate $100,000 per year in revenue. For Ray, the total cost of opening the new branch and remaining open for one year will be ___________.
a. $605,000b. $500,000.c. $550,000.d. $650,000.e. $450,000.

Answer 1

Answer:

c. $550,000

Explanation:

The total cost of opening the new branch and remaining open for one year will be inclusive of the fixed cost which is the cost of opening the new branch and the cost of providing services in a year. This is a variable expense as the total cost depends on the number of customers served during the year.

Hence the total cost of opening the new branch and remaining open for one year will be

= $500,000 + $50 * 1,000

= $550,000