Question

5. An individual leaves a college faculty, where she was earning $50,000 a year, to begin a new venture. She invests her savings of $20,000, which were earning 10 percent annually. She then spends $20,000 renting office equipment, hires two students at $30,000/student a year, rents office space for $15,000 and has other variable expenses of $50,000. At the end of the year, her revenues are $240,000. A. What are her accounting profits for the year

Answer 1

Accounting profit= $75,000

Step-by-step explanation:

Giving the following information:

She invests her savings of $20,000. She then spends $20,000 renting office equipment, hires two students at $30,000/student a year, rents office space for $15,000, and has other variable expenses of $50,000. At the end of the year, her revenues are $240,000.

The accounting profit does not take into account the opportunity cost of other investments/earnings.

Total costs= 20,000 + 20,000 + 60,000 + 15,000 + 50,000= $165,000

Revenues= 240,000

Accounting profit= 240,000 - 165,000= $75,000