Question

Jadranko, a financial accountant at a ride share company, is asked to calculate the net income of the company for a given period. he deducts the cost of goods sold from the revenue earned during that period. before deducting the company's operating expenses from the gross profit, he deducts the rent and the insurance premium paid by the company during that period. in the given scenario, jadranko deducted the company's ____________ from the company's operating expenses.

Answer 1

Jadranko deducted the company's rent and insurance premium from the company's operating expenses.

Step-by-step explanation:

In the given scenario, Jadranko deducted the company's rent and the insurance premium paid by the company during that period from the company's operating expenses before calculating the net income.

Answer 2

Jadranko deducted the ride share company's rent and insurance premium, which are explicit costs, from revenues to calculate accounting profit. The process involved subtracting these explicit costs, along with operating expenses, from the company's gross revenue.

Step-by-step explanation:

Jadranko, the financial accountant at a ride share company, deducted the company's rent and insurance premium paid during the period before deducting operating expenses from the gross profit. These deductions are known as explicit costs, which are out-of-pocket costs for resources like rental space and employee wages. In accounting, explicit costs are subtracted from revenues to calculate the accounting profit.

Here is how the calculation is typically done:

1. First, calculate the total explicit costs, which in this scenario include office rental and a law clerk's salary, totaling to $85,000.
2. Next, subtract the explicit costs from the total revenues ($200,000), which would yield an accounting profit of $115,000.
3. To further evaluate profitability, assess implicit costs, which represent the opportunity costs of using resources. Subtracting both explicit and implicit costs from revenues would provide the economic profit.

Considering implicit costs is essential to determine the true economic profitability, which may differ from accounting profit.