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Chapter 7: Problem 1

A firm had sales revenue of \(\$ 1\) million last year. It spent \(\$ 600,00\) on labor, \(\$ 150,000\) on capital and \(\$ 200,000\) on materials. What was the firm's accounting profit?

Short Answer

Expert verified
The firm's accounting profit last year was \(\$50,000\).

Step by step solution

01

Calculate the Total Cost

Add the costs of labor, capital, and materials together to find the total cost. Total Cost = Labor + Capital + Materials Total Cost = \(\$ 600,000\) + \(\$ 150,000\) + \(\$ 200,000\)
02

Calculate the Accounting Profit

Subtract the total cost from the sales revenue to find the accounting profit. Accounting Profit = Sales Revenue - Total Cost Accounting Profit = \(\$ 1,000,000\) - \(\$ 600,000\) - \(\$ 150,000\) - \(\$ 200,000\) Now let's calculate the accounting profit: Total Cost = \(\$ 600,000\) + \(\$ 150,000\) + \(\$ 200,000\) Total Cost = \(\$ 950,000\) Accounting Profit = \(\$ 1,000,000\) - \(\$ 950,000\) Accounting Profit = \(\$ 50,000\) The firm's accounting profit last year was \(\$50,000\).

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