Question

a firm has cash of $100,000, accounts receivable of $1,200,000, inventory of $4,000,000, retained earnings of $6,000,000, and current earnings of $1,000,000. legally, the firm could payout dividends in the amount of

Answer 1

The accounting profit is calculated by subtracting explicit costs from the total revenue. For the firm with $1 million in sales revenue and $950,000 in explicit costs, the accounting profit equals $50,000.

Step-by-step explanation:

Calculation of Accounting Profit:

The accounting profit is calculated as the total revenues minus explicit costs. For a firm with sales revenue of $1 million, the expenses are as follows:

• Labor costs: $600,000
• Capital costs: $150,000
• Materials costs: $200,000

To find the firm's accounting profit, we subtract the sum of these explicit costs from the total revenue:

Accounting profit = Sales revenue - (Labor costs + Capital costs + Materials costs)
Accounting profit = $1,000,000 - ($600,000 + $150,000 + $200,000)
Accounting profit = $1,000,000 - $950,000
Accounting profit = $50,000