ECONOMICS

COST ACCOUNTING

COST BEHAVIORS

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Assume that you own your own business and your explicit costs are $10, 000 per year. You could earn $11, 000 in your next-best alternative job. Your revenue is $22, 000 per year. What is your accounting profit?
A
$1, 000
B
$11, 000
C
$12, 000
D
$22, 000
Explanation: 

Detailed explanation-1: -Examples of implicit costs include the loss of interest income on funds and the depreciation of machinery for a capital project. They may also be intangible costs that are not easily accounted for, including when an owner allocates time toward the maintenance of a company, rather than using those hours elsewhere.

Detailed explanation-2: -Relationship: Since economic profit is a version of accounting profit with one additional variable subtraction, economic profit will always be equal to or lower than accounting profit-it will never be a larger number than the accounting profit.

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