dy 11.26.17 at 11 Average: 4 1. Accounting versus economic costs Aa Aa During a
ID: 1112378 • Letter: D
Question
dy 11.26.17 at 11 Average: 4 1. Accounting versus economic costs Aa Aa During a particular year, suppose a consulting firm has the following costs: $610,000 in wages and salaries paid to employees; $74,000 in rental payments for office space; and $23,000 for office supplies, advertising, and utlities In addition, Victor, the owner of the firm, works for the firm full time (and does not receive a salary, since he gets the firm's profit). If he did not work for the consulting firm, Victor could earn $125,000 per year working as a consultant for another firm For each possible amount of total revenue in the following table, fill in the accounting profit and economic profit of the consulting firm. Total Revenue Accounting Profit Economic Profit 710,000 760,000 810,000 860,000Explanation / Answer
Ans:
1) Computation of Explicit cost
Explicit cost = wages and salaries + rental payments + office supplies
= $610,000 + $74,000 + $23,000
= $707,000
2) Computation of implicit cost
Implicit cost = salary of victor forgone
Implicit cost = $125,000
3) Accounting profit = Total revenue - Explicit cost
Economic profit = Total revenue - Explicit cost - Implicit cost
Table showing Accounting profit and Economic profit
Total revenue($) Accounting profit($) Economic profit($) 710,000 3000 -122000 760,000 53000 -72000 810,000 103000 -22000 860,000 153000 28000Related Questions
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