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3 years ago

Definition of economic costs

Business

1 answer:

VikaD [51]3 years ago

6 0

Answer:

Definition of Economic Costs

Implicit and Explicit Costs:

The wholesale cost for the pianos that Darnell pays the manufacturer Explicit Cost

The salary Darnell could earn if he worked as an accountant Implicit Cost

The wages and utility bills that Darnell pays Explicit Costs

The rental income Darnell could receive if he chose to rent out his showroom Implicit Cost

Complete the following table by determining Darnell's accounting and economic profit of his piano business.

Profit

(Dollars)

Accounting Profit $89,000

Economic Profit $3,000 ($89,000 - 86,000)

If Darnell's goal is to maximize his economic profit, he( should, should not) stay in the piano business because the economic profit he would earn as an accountant would be $__86,000____.

This economic profit includes the rental and salary income that Darnell can earn.

Explanation:

a) Data:

Sales Revenue = $842,000

Cost of goods sold 452,000

Wages & Utilities = 301,000

Opportunity cost of showroom = $38,000

Opportunity cost of employment = $48,000

Total opportunity cost = $86,000

Profit (Dollars)

Sales Revenue = $842,000

Cost of goods sold 452,000

Gross profit $390,000

Wages & Utilities = 301,000

Net Income $89,000

Opportunity cost of showroom = $38,000

Opportunity cost of employment = $48,000

Total opportunity cost = $86,000

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Answer:

FIFO = $17,000

LIFO = $9,350

Average-cost = $14,450

Explanation:

Initial inventory: 150 units, at a total cost of $16,500 ($110 per unit).

Purchases: 300 units, at a total cost of $60,000 ($200 per unit).

Final inventory: 85 units.

Unit sold: 150+300-85=365 units

FIFO (first in, first out)

In this method, we considered that the units that were first in the inventory were sold first.

Initial inventory: 150 u. x $110 per unit = $16,500 $16,500

Variations: 300u. x $200 per unit = $60,000 $76,500

-150 u. x $110 per unit = -$16.500 $60,000

-215 u. x $200 per unit = -$43,000 $17,000

Final inventory 85 u. x $200 per unit = $17,000

LIFO (last in, first out)

In this method, we considered that the first units that leave the inventory are the last that have arrived.

Initial inventory: 150 u. x $110 per unit = $16,500 $16,500

Variations: 300u. x $200 per unit = $60,000 $76,500

-300 u. x $200 per unit = -$60,000 $16,500

-65 u. x $110 per unit = -$7,150 $ 9,350

Final inventory 85 u. x $110 per unit = $9,350

Average cost

In this method, every unit that left the inventory is valuated with an average-cost per unit of the inventory.

Initial inventory: 150 u. x $110 per unit = $16,500 $16,500

Variations: 300u. x $200 per unit = $60,000 $76,500

-365 u. x <em>$170*</em> per unit = -$62,050 $14,450

Final inventory 85 u. x $170 per unit = $14,450

<em>*average cost = (150*110+300*200)/(150+300)=76500/450=$170</em>

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A quality control activity analysis indicated the following four activity costs of a hotel:

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Total $493,000

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