$21,000 4,000 If the owner of the drugstore hired a manager for $19 an hour to t
ID: 1091282 • Letter: #
Question
$21,000
4,000
If the owner of the drugstore hired a manager for $19 an hour to take his place, how much of a change would show up in (a) Accounting profits per month? (b) Economic profits per month?
Total (gross) revenues per month $ 27,000 less explicit costs: Cost of merchandise sold $17,000 Wages to cashier, stock, and delivery help 2,500 Rent and utilities 800 Taxes 700 Total explicit costs$21,000
Accounting profit (revenue minus explicit costs) $6,000 less implicit costs: Wages of owner-manager, 300 hours @ $10 per hour $3,000 Return on inventory, 10% per year on $120,000 1,000 Total implicit costs4,000
Economic profit (revenue minus all costs) $2,000Explanation / Answer
a the accounting profit would decrease by $5700 (19 dollars per hour * 300 hours ) and become 300 (6000 - 5700). Essentially you are adding 5700 in accounting expenses because you are replacing the unpaid owner manager with a paid manager.
b. The economic profit would decrease by $2700 ($2000 (original economic profit) - -$700 (new economic profit)) You are removing the 3000 implicit cost of the owner managers time but are replacing it with a 5700 accountable cost in the salary of the new manager.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.