Ask Business Economics Expert

Calculation of economic profit also accounting profit.

Bob also Jane decides to open their own business selling ergonomically correct office furniture which Jane has designed. Suppose they operate this business from leased office space near their home. Also suppose which they lease their computer equipment also data base software. The actual production of the furniture is subcontracted to various commercial factories as customer orders arrive also the unassembled kits are shipped via UPS to clients throughout the U.S. Their target marketplace is small businesses including those run out of home offices.

They have so much faith in the potential of Jane's designs which they quit corporate jobs in marketplace also MIS administration (which jointly had earned them $250,000 per yr) also sink $500,000 (.5 million) of their own funds into this venture at the start of their first yr to place advertising in trade journals also on the internet. (Suppose this $500,000 had previously been invested in a diversified portfolio which had been averaging a 10% annual rate of return before tax.) At the end of the yr they Computed which they had the following costs also revenues.

Total Revenues: $5.0 million
Costs:
Payments to furniture subcontractors $3.5 million
Shipping Costs .1 million
Lease Payments on Office Space also Computer
Equipment &Software $ .1 million
Overhead Expenses: Insurance, utilities etc. $ .1 million
Advertising on Internet & Magazines
(Purchased at start of yr) $ .5 million
Additional Sales Expenses (phones, business travel, $ .2 million
Entertaining clients etc.)
Total Listed Costs = $4.5 million

a) Is Bob & Jane's economic profit different from their accounting profit? If so, describe how much economic profit did they earn during this first yr of operation?

b) Illustrate what are Bob & Jane's fixed costs during their first yr of operation?

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M916640

Have any Question?


Related Questions in Business Economics

Standards drive instruction therefore how do standards

Standards "drive instruction," therefore, how do standards influence curriculum planning?

Explain how the application of the pdca cycle can support a

Explain how the application of the PDCA cycle can support a competitive strategy of low cost leadership.

Ford motors expects a new hybrid-engine project to produce

Ford Motors expects a new? Hybrid-engine project to produce incremental cash flows of $ 95 million each year and expects these to grow at 4?% each year. The upfront project costs are? $900 million and? Ford's weighted av ...

A five-year bond with a yield of 11 continuously compounded

A five-year bond with a yield of 11% (continuously compounded) pays an 8% coupon at the end of each year. a) What is the bond's price? b) What is the bond's duration? c) Use the duration to calculate the effect on the bo ...

Image manufacturing is an electronics manufacturer and

IMAGE Manufacturing is an electronics manufacturer and retailer. Its main products are Ultrabook computers, PCs and calculators. The current price of the Ultrabook is $ 600, the PC is $700 and the calculator is $30. This ...

According to kulish what is about the design of the euro

According to Kulish, what is about the design of the euro currency that lessens its appeal compared to prior national currencies?

How has the value of the euro changed compared to other

How has the value of the Euro changed, compared to other countries, over the past 10 years (since the Great Recession began)?

In lecture we discussed why the production possibilities

In lecture we discussed why the production possibilities frontier (the boundary of the production possibilities set) is bowed 'outwards'. When might the production possibilities set be bowed 'inwards'? Give an example of ...

In 2013 gallup conducted a poll and found a 95 confidence

In 2013, Gallup conducted a poll and found a 95% confidence interval of the proportion of Americans who believe it is the government's responsibility for health care. Give the statistical interpretation. I do not underst ...

The standard deviation of the number of video game as

The standard deviation of the number of video game A's outcomes is 0.5479, while the standard deviation of the number of video game B's outcomes is 0.2498. Which game would you be likely to choose if you wanted players t ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As