At the beginning of 2015, a computer programmer quit his job and gave up a salary of $75,000 per year. He started his own organic farm, Turnip Tom's, Inc. An income statement for Turnip Tom's is shown below:
|
|
2015
|
|
Revenues
|
$ 89,000
|
|
Operating costs and expenses
|
|
| Cost of products sold |
$ 12,500
|
| Selling expenses |
$ 5,500
|
| Administrative expenses |
$ 5,200
|
| Total operating costs |
$ 23,200
|
|
Income from Operations
|
$ 65,800
|
| Interest expense (bank loan) |
$ 9,500
|
| Legal expenses |
$ 1,200
|
| Income taxes |
$ 22,000
|
| Net income |
$ 33,100
|
To get started, Tom spent $300,000 of his own savings to purchase land and equipment to be used for the farm. In 2015, Tom could have earned a 10 percent return by investing in stocks of other business with risk levels similar to his farm.
Answer the following questions using the information given above. Be sure to show each step of your calculations.
1.) What are the total explicit costs for 2015?
2.) What are the total implicit costs for 2015?
3.) What are the total economic costs for 2015?
4.) What is accounting profit for 2015?
5.) What is economic profit for 2015?
6.) Using only your analysis in question 1-5, would you say that Tom made a good decision to leave is job to start the organic farm? Explain.