Answer:
B) less than $24,000.
Explanation:
Given:
Revenue: $80,000
So earning before tax is:
Revenue - Renting fee - Operating cost
= $80,000 - $36,000 - $20,000
= $24,000
In this case, they want to know the economic profits from the donut shop, which means that it will be less than $24,000 because they did not count the wage of the husband and wife.
Answer:
B) less than $24,000
Explanation:
Economic Profit is calculated by deducting the opportunity cost and monetary costs from the revenue. Whereas Accounting Profit can be calculated by deducting the only monetary costs from the revenue.
Economic profit = Revenue - Opportunity cost - Monetary cost
Accounting profit = Revenue - Monetary cost
Opportunity costs are all those losses which are faced for choosing an alternative like loss of interest income in case of investment in the business.
Revenue = $80,000
Monetary costs
Rent = $36,000
Operating costs = $20,000
Total Monetary costs = $56,000
Accounting profit = $80,000 - $56,000 = $24,000
Economic profit need to deducted opportunity cost from accounting profit, which is not given, so the economic profit will be less than $24,000.
