2. Exercise 8.2Howard 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 partof his variable operating costs. Interest on his bank loan was $400,000. If Bowen worked for another farmer or a local manufacturer, his annualincome 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 $1,560,000O $1,550,000O $1,220,000.00O $1,210,000.00What is Bowen's economic profit?O $1,550,000O $1,210,000.00O $1,560,000O $1,220,000.00

Accounting Cost vs. Opportunity Cost:Accountants keep trace of out-of-pocket costs, also known as…

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 par 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

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 par 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

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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