Sarah is the owner of Sunshine Bakery. Sunshine Bakery produces 10,000 units of bread per year and sells at the price of RM5 each. Sarah spends RM5,000 on ingredients such as flour, eggs and others to produce the 5,000 units of bread per year. She has withdrawn her savings from a bank to invest in her business. (Assume Sarah could earn an interest of RM1,250 per year from her savings). In the meantime, Sarah also borrows money from a relative for the sake of her business. The relative charges her an interest of RM1,250 annually for the loan. In addition, Sarah hires two part-time workers to help her at the bakery, paying them RM5, 000 each per year. In addition, Sarah can work at a competing bakery for RM20, 000 per year. Based on the information above, (i) Calculate Sarah’s accounting profit (ii) Calculate Sarah’s economic profit
Sarah is the owner of Sunshine Bakery. Sunshine Bakery produces 10,000 units of bread per year and sells at the price of RM5 each. Sarah spends RM5,000 on ingredients such as flour, eggs and others to produce the 5,000 units of bread per year. She has withdrawn her savings from a bank to invest in her business. (Assume Sarah could earn an interest of RM1,250 per year from her savings). In the meantime, Sarah also borrows money from a relative for the sake of her business. The relative charges her an interest of RM1,250 annually for the loan. In addition, Sarah hires two part-time workers to help her at the bakery, paying them RM5, 000 each per year. In addition, Sarah can work at a competing bakery for RM20, 000 per year. Based on the information above,
(i) Calculate Sarah’s accounting profit
(ii) Calculate Sarah’s economic profit
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