To determine the firm's accounting profit, subtract the total costs from the sales revenue. With $1,000,000 in sales and $950,000 in combined labor, capital, and materials costs, the firm's accounting profit is $50,000.
The student is asking about the revenue threshold that qualifies an industry segment of Operand Corporation as significant enough to satisfy a given revenue test. The revenue test generally involves a financial threshold that determines whether an industry segment's revenue is substantial enough to require additional disclosure in financial statements. This threshold can be expressed as a percentage of overall revenue or as a fixed amount.
To calculate the firm's accounting profit, we take the total sales revenue and subtract the total costs, which include labor, capital and materials. In the provided self-check question, the firm's accounting profit is calculated as:
- Sales revenue: $1,000,000
- Labor costs: $600,000
- Capital costs: $150,000
- Materials costs: $200,000
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
In conclusion, the firm's accounting profit is $50,000.