In: Business and Management

Submitted By stduchaussee
Words 1381
Pages 6
#1. (20 pts) Imagine that two years after receiving your college degree, your annual salary as an assistant store manager is $50,000, you own a building that rents for $14,400 yearly, and your financial assets generate $5,000 per year in interest. On New Year’s Day, after deciding to be your own boss, you quit your job, evict your tenants, and use your financial assets to establish a pogo-stick shop. At the end of the year, your accountant gives you the following information: +20 pts * Total revenue = $180,000 * Expenses: * Cost of pogo sticks = $75,000 * Employees’ wages = $40,000 * Utilities = $6000 * Taxes = $7,000 * Advertising expenses = $7500

Answer the following questions: a. What are your explicit costs?

My explicit cost are: Cost of pogo sticks = $75,000 Employee’s wages = $40,000 Utilities = $6,000 Taxes = $7,000 Advertising = $7,500
Total Explicit cost = $135,500 b. What is your accounting profit?

My Accounting profit is: Total Revenue – Total Expenses $180,000 – (75,000+40,000+6,000+7,000+7,500) $180,000 - $135,500 = $44,500

c. What are your implicit costs?

My implicit cost are: $50,000 Annual salary as an assistant store manager $14,400 yearly income of building rental $5,000 per year on interest earned on financial assets
Total implicit cost = $69,400

d. Explain why the reasoning for considering these implicit costs – after all, you didn’t actually have to pay them in cash.

You should consider implicit costs and subtract them from your bottom line if you think the opportunity cost of running a business outweighs the money you could make from other ventures. For instance, calculating the economic profit of your business might show that you would make more money with a typical job or from renting out your business's commercial space. Analyzing…...

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