Question

4Collins Food Group (CFG) owns both Sizzler and KFC in Australia. Due to Sizzler’s continuing poor performance, CFG is deciding whether or not to close the Sizzler restaurants and re-invest into KFC to continue its growth. CFG’s revenues every three months are 445,172 while Sizzler remains open, and they estimate revenues will increase to $494,561 every three months if the divestment of Sizzler goes ahead. Running costs will remain constant at $100,741 every three months in either case. The cost of the divestment of sizzler would be $103,504 over one year.
What is CFG’s accounting profits (every three months) before divestment? Answer to the nearest whole number (with no decimal places, $ or – signs, spaces or commas).

Answer 1

Answer.

The given information.

CFG,s every 3 months revenue =$445,172

Estimates revenue will increase =$494,561

Running cost remain constant =$100,741

The cost of the divestment of sizzler would be= $103,504

Accounting profits = total revenue (TR) - Total cost (TC)

Total cost includes only explicit cost & not implicit cost

So TR from disinvestment for first 3 months = 494561

Now Total explicit cost = running cost + disinvestment

costs ( for three months)

= 100741+ (103504/12)*3

Since disinvestment costs are for one year, so for one month , 100741/12 = 8395

So total cost = 8395 + 25185= 33580

Thus accounting profits = 494561-33580

= 460981 $