b Calculate Economic profit and Accounting profit from the f

(b) Calculate Economic profit and Accounting profit from the figures given below for ABC Company (6 marks) 5600,000 $500,000 $60,000 $10,000 $ 10,000 Ingredients and materials 50,000 $ 10,000 $ 4,000 Total revenue Wages and salaries CO * Forgone salary Interest paid . Other payments Forgone interest

Solution

Total explicit cost = wages and salaries + interest paid + ingredients and materials + other payments

Total explicit cost = $500,000 + $10,000 + $50,000 + $10,000 = $570,000

Total implicit cost = Foregone salary + Foregone rent + Foregone interest

Total implicit cost = $60,000 + $10,000 + $4,000 = $74,000

Calculate the economic profit -

Economic profit = Total revenue - Total explicit cost - Total implicit cost

Economic profit = $600,000 - $570,000 - $74,000 = -$44,000

The economic profit for ABC Company is -$44,000.

Calculate the accounting profit -

Accounting profit = Total revenue - Total explicit cost = $600,000 - $570,000 = $30,000

The accounting profit for ABC Company is $30,000.