Question

Compute net accounting profit based on the following information: Revenues = $4,000; Variable costs = $1,600; Fixed costs = $700; Depreciation = $300; Tax rate = 20 percent.

a) $1,240

b) $2,000

c) $3,200

d) $800

Answer 1

To calculate the net accounting profit, subtract all costs from revenues to find profit before taxes, then subtract the tax expense from this figure. The net accounting profit is found to be $1,120, which is not one of the provided answer choices.

Step-by-step explanation:

To compute the net accounting profit, we must first calculate the total profit before taxes by subtracting all costs, including variable costs, fixed costs, and depreciation from the revenues. After finding the profit before taxes, we then calculate the tax expense by multiplying the profit before taxes by the tax rate. Finally, we subtract the tax expense from the profit before taxes to get the net accounting profit.

First, let's calculate the profit before taxes:

Profit before taxes = Revenues - Variable costs - Fixed costs - Depreciation

Profit before taxes = $4,000 - $1,600 - $700 - $300 = $1,400

Next, we calculate the tax expense:

Tax expense = Profit before taxes * Tax rate

Tax expense = $1,400 * 20% = $280

Now, we can find the net accounting profit:

Net accounting profit = Profit before taxes - Tax expense

Net accounting profit = $1,400 - $280 = $1,120

Thus, the correct answer is none of the options provided (a) $1,240 (b) $2,000 (c) $3,200 (d) $800. The net accounting profit is actually $1,120.