Question

Rather than put the $100,000 that his grandmother left him in a mutual fund and earn 5% each year, Tommy Wang quit his job that paid $60,000 per year and used the $100,000 to start Wang's Wicker Furniture Store. He rented a showroom for $20,000 for the year, purchased $60,000 in wicker furniture, and incurred costs of $40,000 for sales help and advertising. In his first year, his revenue was approximately $150,000.
(Scenario: Accounting and Economic Profit) The implicit costs of Wang's Wicker Furniture Store is:
A) $0
B) $65,000
C) $10,000
D) $100,000

Answer 1

Answer:

Total implicit cost = $65,000

so correct option is B) $65,000

Explanation:

given data

mutual fund = $100,000

earn = 5%

rented a showroom = $20,000

furniture = $60,000

incurred costs = $40,000

solution

we know that Implicit cost that is take here into account alternative that have sacrifice

so that  alternative sacrifice is interest on the deposit of 5 % of 100,000 = $5000

and salary foregone = $60,000

so

Total implicit cost is

Total implicit cost = $5,000 + $60,000

Total implicit cost = $65,000

so correct option is B) $65,000