John was a high school teacher earning $ 80,000 per year. He quit his job to start his own business in pizza catering. In order to learn how to run the pizza catering business, John enrolled in a TAFE to acquire catering skills. John’s course was for 3 months. John had to pay $2,000 as tuition for the 3 months. After the training, John withdrew $110,000 from his savings account. He had been earning 5 percent interest per year for this account. He also borrowed $50,000.00 from his friend whom he pays 6 percent interest per year. Further, to start the business John used his own premises. He was receiving $12,000 from rent per year. Finally, to start the business John uses $50,000 he had been given by his father to go on holiday to USA. John’s first year of business can be summarised as follows: Item Amount $ Revenue- Pizza Section 400,000 Revenue- Beverages Section 190,000 2 Cashiers (wages per worker) 55,000 Pizza ingredients 50,000 Manager 75,000 3 Pizza bakers (wages per baker) 60,000 Equipment 10,000 Based on your calculated accounting profit and economic profit, would you advise John to return to his teaching job? Show your work
John was a high school teacher earning $ 80,000 per year. He quit his job to start his own business in pizza catering. In order to learn how to run the pizza catering business, John enrolled in a TAFE to acquire catering skills. John’s course was for 3 months. John had to pay $2,000 as tuition for the 3 months.
After the training, John withdrew $110,000 from his savings account. He had been earning 5 percent interest per year for this account. He also borrowed $50,000.00 from his friend whom he pays 6 percent interest per year. Further, to start the business John used his own premises. He was receiving $12,000 from rent per year. Finally, to start the business John uses $50,000 he had been given by his father to go on holiday to USA.
John’s first year of business can be summarised as follows:
|
Item |
Amount $ |
|
Revenue- Pizza Section |
400,000 |
|
Revenue- Beverages Section |
190,000 |
|
2 Cashiers (wages per worker) |
55,000 |
|
Pizza ingredients |
50,000 |
|
Manager |
75,000 |
|
3 Pizza bakers (wages per baker) |
60,000 |
|
Equipment |
10,000 |
Based on your calculated accounting profit and economic profit, would you advise John to return to his teaching job? Show your work
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