Respuesta :
Answer:
(a)
Implicit cost includes:
The salary Darnell could earn if he worked as an accountant = $48,000
The rental income Darnell could receive if he chose to rent out his showroom = $38,000
Total implicit cost = $48,000 + $38,000
               = $86,000
Explicit cost includes:
The wholesale cost for the pianos that Darnell pays the manufacturer = $452,000
The wages and utility bills that Darnell pays = $301,000
Total Explicit cost = $452,000 + $301,000
               = $753,000
(b) Accounting Profit = Revenue from selling pianos - Total Explicit cost
                 = $842,000 - $753,000
                 = $89,000
Economic Profit = Revenue from selling pianos - Total Explicit cost - Total implicit cost
              = $842,000 - $753,000 - $86,000
              = $3,000
1. The identification of costs as either an implicit cost or an explicit cost is as follows:
Implicit Cost:
1) The salary Darnell could earn if he worked as an accountant.
2) The rental income Darnell could receive if he chose to rent out his showroom.
Explicit Cost:
1) The wholesale cost for the pianos that Darnell pays the manufacturer.
3)The wages and utility bills that Darnell pays.
2. The completion of the table to determine Darnell's accounting and economic profit of his piano business is as follows:
                                          Profit(Dollars) Â
                               Accounting Profit   Economic Profit
Revenue for selling pianos $842,000
Cost of goods sold        (452,000)
Wages and utility expenses (301,000) Â Â Â $89,000 Â Â Â Â Â Â Â Â Â $89,000
Opportunity costs:
Showroom costs: Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â (38,000)
Annual salary as an accountant = Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â (48,000)
Economic profit                                        $3,000
3) If Darnell's goal is to maximize his economic profit, he should not stay in the piano business because the economic profit he would earn as an accountant would be $86,000 ($48,000 + $38,000).
What is the difference between accounting and economic profits?
Accounting profit does not take into account the opportunity (implicit) costs or revenues.
Economic profit accounts for both opportunity (implicit) and explicit costs.
Data and Calculations:
Revenue for selling pianos = $842,000
Cost of goods sold = $452,000
Wages and utility expenses = $301,000
Opportunity cost of showroom = $38,000
Annual salary as an accountant = $48,000
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