Assume Yon gave up a $44,000 per year job at an accounting firm to start your ow

Question

Assume Yon gave up a $44,000 per year job at an accounting firm to start your own tax preparation business. To simplify, assume you paid die same income taxes when you worked for the accounting firm and when you had your own business. if your revenue during die first year of business is $55,000, and you incurred $2,000 in expenses for supplies, how much is your accounting profit? much is your economic profit? If your revenue during the first year of business is $48,000, and you incurred SIMO in expenses for supplies. how much is your accounting profit? How much is your economy: profit? If your revenue during the first year of business is $45,000, and you incurred $3,000 in expenses for supplies, how much is your accounting profit? How much is your economic profit?

Explanation / Answer

The major difference between economic profit and accounting profit is the opportunity in incorporated into the calculations in the former and is not included into calculations of the latter.

1. Revenue 1st year = $55,000. Expenses = $2000

Accounting profit = $53,000.

Economic profit = revenue - cost (expenses+opportunity cost). Here the opportunity cost is $44,000 that is next best alternative.

Economic profit = $55,000 - (2000+44,000)

Economic profit = $9000.

2. Revenue = $48,000. Expenses = $4000.

Accounting profit = 48000-4000

Profit = 44,000.

Economic profit = 48000-4000-44000

Profit = 0.

3. Revenue = $45000. Expenses = $3000.

Accounting profit = 45000-3000

Profit = 42000.

Economic profit = 45000-3000-44000

Profit = -2000.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.