Question

The seller should be advised to contact their accountant for an estimate as this is beyond the expertise of a salesperson.

1. YES.
2. NO.

Answer 1

The firm's accounting profit is calculated by subtracting the total expenses from the sales revenue, which in this case is $1,000,000 - ($600,000 + $150,000 + $200,000), resulting in an accounting profit of $50,000.

When calculating a firm's accounting profit, we subtract the total expenses from the sales revenue. In the given scenario, the firm had sales revenue of $1 million and incurred expenses totaling $950,000 ($600,000 on labor, $150,000 on capital, and $200,000 on materials). To determine the firm's accounting profit, we perform the following calculation:

Sales Revenue - (Labor Costs + Capital Costs + Material Costs) = Accounting Profit

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

Therefore, the firm's accounting profit for the last year was $50,000.

So, it's important to understand a firm's financials, and calculating the accounting profit is a fundamental aspect of analyzing a business's performance.