Question

Jamie is considering leaving her current job, which pays $75,000 per year, to start a new company that develops applications for smartphones. Based on market research, she can sell about 50,000 units during the first year at a price of $4 per unit. With annual overhead costs and operating expenses amounting to $145,000. Jamie expects a profit margin of 20 percent. This margin is 5 percent larger than that of her largest competitor, Apps. Inc.

a. If Jamie decides to embark on her new venture, What will her accounting cost be during the first year of operation? Her implicit costs? Her opportunity costs?
Accounting costs: $_____
Implicit costs: $_____
Opportunity costs: $_____
b. Suppose that Jamie's estimated selling price is lower than originally projected during the first year. How much revenue would she need in order to earn positive accounting profits? Positive economic profits?
Revenue needed to earn positive accounting profits: $______
Revenue needed to earn positive economic profits:

Answer 1

Follows are the solution to the given points:

Step-by-step explanation:

For point A:

Cost with accounting=The actual manufacturing expenditures or spendings that appear on expensive sports or record of a company=
`\$ 145,000`

`\text{Costs = gross pay} = 50000 * 4 - 1.2 *1,45,000 = 26000\\\\{ total \ cost = 120 \% \ of\ 145,000}`

Cost opportunity=75,000

Total revenue required besides positive accounting benefits=cost of accounting =145000

Income to create positive economic benefits=cost of accounts + implied cost

`= 145000+26000=171000`

For point B:

Income required to make positive profit in accounts = 145,000 more than the accounting costs

Revenue necessary to earn positive profit = 220,000 more than opportunity cost