Profit Using Accounting Costs Profit Using Opportunity Costs

Profit Using Accounting Costs Profit Using Opportunity Costs $700,000 Total Revenue Cost $700,000 Total Revenue Cost Nail technicians Owner\'s Salary Depreciation Allowance Nail technicians Owners Time Cost of using building and equipment (opportunity cost) $25,000 Total Cost Total Profit Total Cost Total Profit Happy Nails is a locally owned nail salon that is in its first year of business. The nail salon employs 8 nail technicians that are paid $31,250 each and the owner\'s is paid $75,000. If the owner did not own Happy Nails, she would work for a competitor for $85,000. At the beginning of the year, the building and the salon equipment are worth $100,000 and at the end of the year, they are worth $85,000. The accountant for Happy Nails uses straight -line depreciation for the 15-year life of the building and salon equipment. The table above provides some additional information on revenue and the opportunity cost of using the building and equipment. What is the value of D? ( A. $4,250 OB. $5,000 OC. $6,666.67 OD. $5,666.67

Solution

We have to calculate the value of D.

D is depreciation allowance.

Happy Nails uses straight-line depreciation method.

Life of building and salon equipment = 15 years

Calculate depreciation -

Depreciation = Cost of building and salon equipment at the start of business/Life of building and salon equipment

Depreciation = $100,000/15 = $6,666.67

The value of D is $6,666.67

Hence, the correct answer is the option (C).