Jill took $40,000 that she had in savings and started her own business. If left in investments, she would have earned $4,000 this year. Jill also left a job that paid her $50,000 a year and plans on paying herself $30,000. Materials and other labor costs will be $60,000. The company is located in a building that Jill owns. She has an insurance and mortgage payment of $10,000. She could have rented the building out for $20,000.

What are the accounting and economic cost?

Question

Dolly

Business

10 May, 12:03

Jill took $40,000 that she had in savings and started her own business. If left in investments, she would have earned $4,000 this year. Jill also left a job that paid her $50,000 a year and plans on paying herself $30,000. Materials and other labor costs will be $60,000. The company is located in a building that Jill owns. She has an insurance and mortgage payment of $10,000. She could have rented the building out for $20,000.

What are the accounting and economic cost?

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Answers (1)

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Andre Cowan · Answer 1

Accounting Cost = $100,000

Economic Cost = $114,000

Explanation:

The computation of accounting and economic cost is shown below:-

Accounting Cost = Salary of Jill + Labor costs + Insurance and mortgage payment

= $30,000 + $60,000 + $10,000

= $100,000

Economic Cost = Accounting Cost + Investment return lost + Loss in Salary ($50,000 - $30,000) + Loss in Rent ($20,000 - $10,000)

= $100,000 + $4,000 + $10,000

= $114,000