Question

Annual Sales Revenue (TR)	Annual Cost Items of Clothes Sold	$ Costs Per Year
$100,000	Lease of your office	$18,000
	Domain and Website usage cost and internet web hosting fee	$10,000
	Transportation and Shipping	$12,000
	Electricity, phones and other utilities	$5,000
	Other Sales and related expenses	$10,000

3.1 - From this chart of TR and TC amount, what is your total gross profit? Is it Accounting profit or economic profit?

3.2 - Calculate the fixed cost and compare with variable costs.

3.3- What is your accounting profit and what is your economic profit as you have found in your answer to Q3.1

Is the TGP $45,000? and I think its accounting profit.

Is fixed cost $33K and Variable $22K

How do i figure accounting profit and economic profit?

Answer 1

3.1)

Total Revenue (TR) = $ 100,000

Total Cost (TC) = $ (18,000 + 10,000 + 12,000 + 5,000 + 10,000 = $ 55,000

Total Gross Profit (TGP) = TR - TC = $ (100,000 - 55,000) = $ 45,000

This is the accounting profit.

3.2)

Fixed costs are independent of the level of output.

Variable costs increase with the level of production and vice-versa.

Here, Fixed cost = Lease of your office + Domain and Website usage cost and internet web hosting fee

= $ (18,000 + 10,000)

= $ 28,000

Variable cost = Transportation and Shipping + Electricity, phones and other utilities + Other Sales and related expenses

= $ (12,000 + 5,000 + 10,000)

= $ 27,000

3.3)

Accounting profit = Total revenue - Explicit Cost

Economic profit = Total revenue - Explicit and Implicit Cost

Implicit cost basically refers to the opportunity cost of using one's own resources in the business.

Here, there is no implicit cost. Hence, Accounting profit = Economic profit for this case.