Question

Total operating expenses are defined as

a) Expenditure - Replacement Allowance
b) Sum of Variable Expenses
c) Sum of Fixed and Variable Operating Expenses and Replacement Allowance
d) Total Revenue - Gross Income

Answer 1

Total operating expenses are the sum of fixed plus variable costs, exemplified by the operating costs of a barber shop, which include costs for space, equipment, and barbers hired.

Step-by-step explanation:

The question relates to the definition of total operating expenses in a business context. Using the example of "The Clip Joint" barber shop, we can establish that total costs are indeed the sum of fixed costs and variable costs. The fixed costs, in this case, are $160 per day for space and equipment, while variable costs are $80 per barber each day. By multiplying the number of barbers by their daily wage, we calculate the variable costs.

To find the total costs, we simply add the fixed costs to the variable costs. For instance, if the barber shop employs two barbers, the variable costs are 2 × $80 = $160, resulting in total costs of $160 (fixed) + $160 (variable) = $320 for that day.