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Yuki888 [10]
2 years ago
5

For the following problems, use the information below for information on Lee and his business.

Business
1 answer:
skad [1K]2 years ago
3 0

Answer:

Giles and His Business

1. Revenue generated by the business = $250,000

2. The interest on the bank loan = $200

3. Explicit costs are:

Cost of Trinkets      $20,000

Cost of goods          170,000

Electricity expense     5,000

Interest on loan             200

Loss on sale of

 memorabilia             1,000

Depreciation            10,000

Total                   $206,200

4. Accounting profit = $43,800

5. Yes.  The loss arising from the sale of the memorabilia and the storefront lost value over time are costs of doing business, because they would not have been incurred if the business was not formed.

6. Gile's implicit costs are:

Loss of income as a librarian $50,000

Opportunity cost of renting out the storefront $20,000

Total implicit costs = $70,000

7. Gile's economic profit = ($26,200)

8. In determining whether or not Giles was right to start his small business, the economic profit matters more than the accounting profit.

9. His calculated economic profit should influence him in the short-run.  However, profit prospects should influence his decision in the long-run.

10.  This fire would affect both his economic and accounting profits.

Explanation:

a) Data and Calculations:

School Librarian income = $50,000 per year

Profit from an assortment of trinkets = $40,000 ($60,000 -$20,000)

Profit from purchase of goods = $20,000 ($190,000 - $170,000)

Electricity expense = $5,000

Shop fittings = $2,000

Bank loan = $2,000

Interest on loan = $200 ($2,000 * 10%)

Sale of memorabilia = $1,000

Opportunity cost (Renting) = $20,000

Depreciation on Storefront = $10,000 ($500,000 - $490,000)

Revenue generated by Gile's business:

Trinket = $60,000

Goods = $190,000

Total = $250,000

Explicit cost 206,200

Profit = $43,800

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