Question

Elroy Rocket is entering his senior year as an accounting major and has a number of options for his summer break. His options for the 3 month break follow: (1) Work full time at a local accounting firm making $3,950 per month. (2) Take a summer class which will cost $800 and work half time making $1,100 per month. (3) Take a class at a cost of $800 and not work at all during the summer. Elroy's incremental profit or loss if he chooses option 2 over option 1 would be

Answer 1

Income that can be earned under Option 1:

Option1:

Working Full time @ 3,950 per Month

= Salary per Month × Number of Months

= $ 3,950 per month × 3 Months

= $ 11,850

Option2:

Working Part time @ 1,100 per month and studying @ 800 @ 3,250 per Month

= Income – Expense

= ( Salary per Month × Number of Months )- Expense

=($1,100 x 3 )-$800

=$3,300-$800

=$2,500

Incremental Loss if Mr E chooses Option 2 over Option 1:

= Income from Option2 – Income from Option1

=$2,500-$11,850

=-$9,350

$7,250 is opportunity loss