Question

Jill took ​$40,000 that she had in savings and started her own business. If left in​ investments, she would have earned ​$4,000 this year. Jill also left a job that paid her ​$50,000 a year and plans on paying herself ​$30,000. Materials and other labor costs will be ​$60,000. The company is located in a building that Jill owns. She has an insurance and mortgage payment of ​$10,000. She could have rented the building out for ​$20,000.
What are the accounting and economic cost?

Answer 1

Answer:

Accounting Cost = $100,000

Economic Cost = $114,000

Explanation:

The computation of accounting and economic cost is shown below:-

Accounting Cost = Salary of Jill + Labor costs +  Insurance and mortgage payment

= $30,000 + $60,000 + $10,000

= $100,000

Economic Cost = Accounting Cost + Investment return lost + Loss in Salary  ​($50,000 - $30,000) + Loss in Rent ($20,000 - $10,000)

= $100,000 + $4,000 + $10,000

= $114,000