Question

A business owner makes 50 items a day. He spends 8 hours in producing those items. If hired elsewhere he could have earned $10 an hour. The item sells for $10 each. Production occurs seven days a week. If the total costs are $10,000 a month, the accounting profit for the month equals:

Answer 1

Accounting profits for the month = $4,000.

What is production?

• In order to create anything for consumption, several material and immaterial inputs are combined during the production process.
• It is the process of producing output, a good or service that has value and enhances people's usefulness.

What are profits?

• The difference between an economic entity's revenue from its outputs and the opportunity costs of its inputs is what is known as a profit.
• It is equivalent to total income less total expenses, which includes both direct and indirect expenses.

Solution -

Production happens 7 days a week.

Let,s tale 28 days in a month (4 weeks in a month)

50 items are produced every day and each costs $10.

50 × 10 = $500 (Daily sale)

Monthly sale = 500 × 28 = $14,000 (Monthly revenue)

Cost of production per month = $10,000.

Profit = 14,000 - 10,000 = $4,000.

Therefore, accounting profits for the month = $4,000.

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