Question

Cain Company reports net cash provided by operating activities of $37,000. It also reports the following information under "Adjustments to reconcile net income to net cash provided by operating activities" on its statement of cash flows (using the indirect method).

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Answer 1

The firm's accounting profit is calculated by subtracting explicit costs from total revenues. After deducting $950,000 in costs from $1 million in revenue, the firm's accounting profit is $50,000.

Step-by-step explanation:

The accounting profit for a firm that had sales revenue of $1 million can be calculated by subtracting the explicit costs it incurred for labor, capital, and materials from its total revenues. Specifically, if the firm spent $600,000 on labor, $150,000 on capital, and $200,000 on materials, these costs sum up to $950,000. Subtracting these costs from the total sales revenue of $1 million will give us the firm's accounting profit.

To find the accounting profit, we use the formula:

Accounting Profit = Total Revenues - Explicit Costs

Plugging in the numbers:

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

After performing the calculations:

Accounting Profit = $1,000,000 - $950,000

Accounting Profit = $50,000

Therefore, the firm's accounting profit is $50,000.