Use the accounts listed below to answer the questions about the profit of a business. Total Revenue ………………………………………………………………..$100,000 Hired Labor ……………………………………………………………………$25,000 Materials Purchased …………………………………………………………...$25,000 Interest that the owner could have earned on an alternative investment ……… $5,000 Income the owner could have earned by renting the firm’s building …………. $4,000 Utility Payments ………………………………………………………………..$5,000 Income the owner could have earned in an alternative business venture ……..$30,000 Cost of shipping the firm’s output to buyers ………………………………… $1,000 Identify the explicit costs incurred by this business. Why are they explicit costs? Identify the implicit costs incurred by the business. Why are they implicit costs? How much accounting profit does the firm make? Show your work. How much economic profit (loss) does this firm make? Show your work. If these financial results continue in the long run, will this firm stay in this business?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Use the accounts listed below to answer the questions about the profit of a business.

Total Revenue ………………………………………………………………..$100,000

Hired Labor ……………………………………………………………………$25,000

Materials Purchased …………………………………………………………...$25,000

Interest that the owner could have earned on an alternative investment ……… $5,000

Income the owner could have earned by renting the firm’s building …………. $4,000

Utility Payments ………………………………………………………………..$5,000

Income the owner could have earned in an alternative business venture ……..$30,000

Cost of shipping the firm’s output to buyers ………………………………… $1,000

Identify the explicit costs incurred by this business. Why are they explicit costs?
Identify the implicit costs incurred by the business. Why are they implicit costs?
How much accounting profit does the firm make? Show your work.
How much economic profit (loss) does this firm make? Show your work.
If these financial results continue in the long run, will this firm stay in this business?

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