Mike starts his own business after quitting his job in which he made $75,000. Expenses include $100,000 for wages and salaries, which includes a wage for the owner of $75,000, utilities of $5000, equipment of $50,000, and materials of $40,000. If revenues are $200,000, his accounting and economic profits are respectively:

Question

Eli Kline

Business

13 February, 16:00

Mike starts his own business after quitting his job in which he made $75,000. Expenses include $100,000 for wages and salaries, which includes a wage for the owner of $75,000, utilities of $5000, equipment of $50,000, and materials of $40,000. If revenues are $200,000, his accounting and economic profits are respectively:

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Answers (1)

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Aleena · Answer 1

Accounting Profits = $130,000

Economic profit = $5,000

Explanation:

Data provided in the question:

Previous wage = $75,000

Expenses for wages and salaries = $100,000

Wage for the owner = $75,000

Utilities = $5000

Equipment charges = $50,000

Materials = $40,000

Revenues = $200,000

Now,

Since he is himself the owner his salary will not be included in the wages expense

Thus,

Net expense for salary = $100,000 - $75,000

= $25,000

Accounting Profits = Revenues - Net expense for salary - Utilities - Materials

= $200,000 - $25,000 - $5,000 - $40,000

= $130,000

Economic profit = Accounting Profits - Equipment charges - Previous wage

= $130,000 - $50,000 - $75,000

= $5,000