Question

On July 1, 2024, Cromartie Furniture established a _______?

1) $150,000 loan from a bank
2) $150,000 profit
3) $150,000 loss
4) $150,000 investment from shareholders

Answer 1

After subtracting the total expenses of $950,000 (labor, capital, materials) from the sales revenue of $1 million, the firm's accounting profit is $50,000.

Step-by-step explanation:

To ascertain the firm's accounting profit, we need to subtract all its expenses from its sales revenue. Given that the firm had sales revenue of $1 million last year and incurred expenses of $600,000 on labor, $150,000 on capital, and $200,000 on materials, the calculation is as follows:

Total Expenses = Labor + Capital + Materials

= $600,000 + $150,000 + $200,000

= $950,000

Subtracting the total expenses from the sales revenue, we get:

Accounting Profit = Sales Revenue - Total Expenses

= $1,000,000 - $950,000

= $50,000

Therefore, the firm's accounting profit is $50,000.