Question

Watkins, Incorporated's Year 1 income statement reported net sales of $5,000,000. Watkin’s average accounts receivable during Year 1 amounted to $450,000. Using 360 days to a year, Watkin’s:

Answer 1

The student's question about calculating accounting profit is answered by subtracting the explicit costs (labor, capital, and materials) from the sales revenue, resulting in an accounting profit of $50,000.

Step-by-step explanation:

The student is asking about calculating accounting profit, which is derived from subtracting explicit costs from total revenues. In the example given, the firm had sales revenue of $1 million and incurred costs for labor, capital, and materials amounting to $600,000, $150,000, and $200,000 respectively. To find the accounting profit, we would calculate the difference between the total revenues and the sum of these costs.

Using the information:

• Sales revenue: $1,000,000
• Labor cost: $600,000
• Capital cost: $150,000
• Material cost: $200,000

The accounting profit is:

$1,000,000 - ($600,000 + $150,000 + $200,000) = $1,000,000 - $950,000 = $50,000.