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Leni [432]
3 years ago
5

Andrew lives in New York City and runs a business that sells boats. In an average year, he receives $793,000 from selling boats.

Of this sales revenue, he must pay the manufacturer, a wholesale cost of $430,000; he also pays wages and utility bills totaling $301,000. He owns his showroom; if he chooses to rent it out, he will receive $15,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also if Andrew does not operate this boat business, he can work as a financial advisor, receive an annual salary of $50,000 with no additional monetary costs, and rent out his showroom a the $15,000 per year rate. No other costs are incurred in running this boat business.
Identify each of Andrew's costs in the following table as either an implicit cost or an explicit cost of selling boats.
Implicit Cost Explicit Cost
The wages and utility bills that Andrew pays
The rental income Andrew could receive if he choose to rent out his showroom
The salary Andrew could earn if he worked as a financial advisor
The wholesale cost for the boats that Andrew pays the manufacturer
Complete the following table by determining Andrew's accounting profit of his boat business.
Profit (Dollars)
Accounting Profit
Economic Profit
Business
1 answer:
melamori03 [73]3 years ago
7 0

Answer:

the solutions are below.

Explanation:

1. The wages and utility bills that Andrew pays is <u>explicit cost</u>

2. The rental income Andrew could receive if he choose to rent out his showroom  <u>is implicit cost</u>

3. The salary Andrew could earn if he worked as a financial advisor s an <u>implicit cost</u>

4. The wholesale cost for the boats that Andrew pays the manufacturer is an <u>explicit cost.</u>

<u></u>

<u>accounting profit = </u>revenue - explicit cost

= 793000-[430000+301000]

=$62000

<u>Economic profit = revenune - [explicit cost + implicit cost]</u>

<u>= </u>793000-[430000+301000+50000+15000]

= 793000-796000

= -$3000

<u></u>

<u></u>

<u></u>

<u></u>

<u></u>

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An agreement to exchange dollar bank deposits for euro bank deposits in one month is a <u>forward transaction.</u>

<h3>What is a forward contract?</h3>

A tailored agreement between two parties to purchase or sell an item at a predetermined price at a later date is known as a forward contract. Although its non-standardized nature makes it particularly suitable for hedging, a forward contract can be utilized for speculating or hedging.

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1 year ago
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7 0
2 years ago
On January 1, 2018, Lumos Company purchased a machine for $70,200. Lumos uses straight-line depreciation and estimates an eight-
jeka94

Answer:

Gain= $4,200

Explanation:

Giving the following information:

Purchase price (2018)= $70,200

Salvage value= $5,400

Useful life= 8 years

Selling price= $42,000

<u>First, we need to calculate the depreciation expense and accumulated depreciation:</u>

Annual depreciation= (original cost - salvage value)/estimated life (years)

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<u>If the selling price is higher than the book value, the company gain from the sale. Now, we need to determine the book value.</u>

<u></u>

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Gain/loss= selling price - book value

Gain/loss= 42,000 - 37,800

Gain= $4,200

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2 years ago
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