Question

In addition to a balance sheet, you want to create a profit-and-loss (P&L) statement for the first three months. Use the information below to create your P&L statement:

What is the Gross Profit for the first three months?

a) $21,126
b) $2,146
c) $3,546
d) $1,350

Answer 1

Gross Profit for the firm is calculated by subtracting the explicit costs of labor, capital, and materials from the total revenues. The explicit costs total $950,000, and with revenues of $1,000,000, the Gross Profit comes to $50,000. This answer does not match any of the options provided; the closest option (d) $1,350 is incorrect.

Step-by-step explanation:

Gross Profit Calculation

Based on the information provided from the self-check questions in Chapter 7, the firm had sales revenue of $1 million. The firm's total explicit costs include $600,000 for labor, $150,000 for capital, and $200,000 for materials. To calculate the accounting profit, we subtract the explicit costs from the total revenues, resulting in:

Total Revenues: $1,000,000

Explicit Costs: $600,000 (labor) + $150,000 (capital) + $200,000 (materials) = $950,000

Accounting Profit (Gross Profit): $1,000,000 - $950,000 = $50,000

Therefore, the correct answer for the Gross Profit for the first three months is:
a) $50,000