Question

Jill took ​$50 comma 000 that she had in savings and started her own business. If left in investments she would have earned ​$5 comma 000 this year. Jill also left a job that paid her ​$70 comma 000 a year and plans on paying herself ​$40 comma 000. Materials and other labor costs will be ​$80 comma 000. The company is located in a building that Jill owns. She could have rented the building out for ​$40 comma 000 but plans on charging the company only the insurance and mortgage payment of ​$20 comma 000. What do the accounting and economic costs​ equal?

Answer 1

$140,000 and $195,000

Step-by-step explanation:

The computations are shown below:

Accounting cost would be

= Jill salary + material and other labor costs + Insurance and mortgage payment

= $40,000 + $80,000 + $20,000

= $140,000

The economic cost would be

= Accounting cost + investment left + loss in salary + loss in rent

= $140,000 + $5,000 + $30,000 + $20,000

= $195,000

The loss in salary would be

= $70,000 - $40,000

= $30,000

The loss in rent would be

= $40,000 - $20,000

= $20,000