Question

Denver, Incorporated, has sales of $18.2 million, total assets of $13.2 million, and total debt of $4 million. The profit margin is 10 percent.

Answer 1

The question does not provide enough information to calculate the accounting profit.

Step-by-step explanation:

The profit margin is typically calculated by dividing the net income by the total revenue and expressing the result as a percentage. In this case, we are given that the profit margin is 10 percent. To calculate the net income, we need to subtract the total expenses from the total revenue.

Net Income = Total Revenue - Total Expenses

Since the question only provides the sales revenue and does not specify the expenses, we cannot calculate the net income or the accounting profit. Therefore, we cannot determine the accounting profit for the firm.

Answer 2

The firm's accounting profit is calculated by subtracting all expenses from the total sales revenue. For the example firm, the accounting profit comes to $50,000 after deducting labor, capital, and materials costs from $1 million in sales revenue.

Step-by-step explanation:

The calculation of a firm's accounting profit involves subtracting all expenses from its total sales revenue. In the example provided, Denver, Incorporated has a profit margin of 10 percent on its sales of $18.2 million, which would result in a net income (accounting profit) of $1.82 million given the profit margin formula.

To answer the self-check question:

1. First, calculate the total costs by adding up labor, capital, and materials expenses, which in this case amounts to $600,000 + $150,000 + $200,000 = $950,000.
2. Then, subtract this total expense from the sales revenue to find the accounting profit: $1,000,000 - $950,000 = $50,000.

The firm's accounting profit is therefore $50,000.