Question

As the manager of the production department, Roul is concerned about increasing direct materials costs. Last year's profit of $24,800 resulted from sales of:

a. $50,000
b. $75,000
c. $100,000
d. $125,000

Answer 1

The accounting profit of the firm is calculated by subtracting total costs from sales revenue. In this case, the accounting profit is $50,000, determined by deducting total costs of $950,000 from sales revenue of $1 million.

Step-by-step explanation:

To calculate the firm's accounting profit, we subtract its total costs from its sales revenue. In the given example, the firm had sales revenue of $1 million last year. The total costs are the sum of labor, capital, and materials, which were $600,000, $150,000, and $200,000 respectively. Adding these costs gives us a total of $950,000. Therefore, the accounting profit is calculated as:

Sales Revenue - Total Costs = Accounting Profit

$1,000,000 - $950,000 = $50,000

So, the firm’s accounting profit was $50,000.