2. Exercise 8.2Howard Bowen is a large-scale cotton farmer. The land and machinery he owns has a current market value of $8 million. Bowen owes his local bank $5million. Last year Bowen sold $7 million worth of cotton. His variable operating costs were $5 million; accounting depreciation was $40,000, althoughthe actual decline in value of Bowen's machinery was $60,000 last year. Bowen paid himself a salary of $50,000, which is not considered part of hisvariable operating costs. Interest on his bank loan was $400,000. If Bowen worked for another farmer or a local manufacturer, his annual incomewould be about $50,000. Bowen can invest any funds that would be derived if the farm were sold to earn 10% annually. (Ignore taxes.)What is Bowen's accounting profit?$1,560,000$1,190,000.00$1,200,000.00$1,550,000What is Bowen's economic profit?$1,190,000.00$1,200,000.00$1,550,000$1,560,000

Question 1: What is Bowen's accounting profit?Answer PartThe accounting profit is…

Answered: 2. Exercise 8.2 Howard Bowen is a…

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 2E

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Upon graduating with an accounting degree, you open your own accounting firm of which you and your assistant are the only employees. To start the firm you passed on a job offer with a large accounting firm that offered you a salary of $50,000 annually. Last year you earned a total revenue of $120,000. Rent and supplies last year were $50,000. Your assistant's salary is $30,000 annually. annual operating profit? A) -$10,000. B) $40,000. C) $70,000. D) $80,000.
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2. Exercise 8.2 Howard Bowen is a large-scale cotton farmer. The land and machinery he owns has a current market value of $12 million. Bowen owes his local bank $9 million. Last year Bowen sold $11 million worth of cotton. His variable operating costs were $9 million; accounting depreciation was $40,000, although the actual decline in value of Bowen's machinery was $60,000 last year. Bowen paid himself a salary of $50,000, which is not considered part of his variable operating costs. Interest on his bank loan was $400,000. If Bowen worked for another farmer or a local manufacturer, his annual income would be about $30,000. Bowen can invest any funds that would be derived if the farm were sold to earn 10% annually. (Ignore taxes.) What is Bowen's accounting profit? O $1,560,000 O $1,550,000 O $1,220,000.00 O $1,210,000.00 What is Bowen's economic profit? O $1,550,000 O $1,210,000.00 O $1,560,000 O $1,220,000.00
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