Walter used to work as a high school teacher for $40,000 per year but quit in order to start his own

8 answers
Question:

Walter used to work as a high school teacher for $40,000 per year but quit in order to start his own painting business. to invest in his painting business, he withdrew $20,000 from his savings, which paid 3 percent interest, and borrowed $30,000 from his uncle, whom he pays 3 percent interest per year. last year walter paid $25,000 for supplies and had revenue of $60,000. walter asked tyler the accountant and greg the economist to calculate his painting business's profit.
a. tyler says his profit is $34,100, and greg says his profit is $34,100.
b. tyler says his profit is $25,900, and greg says his profit is $66,500.
c. tyler says his profit is $35,000, and greg says he lost $5,900.
d. tyler says his profit is $34,100, and greg says he lost $6,500.

Answers

d. tyler says his profit is $34,100, and greg says he lost $6,500.

Accounting profit is simply revenues minus explicit (direct) costs whereas economic profit factors in opportunity costs and explicit costs.

D) tyler says his profit is $34,100, and greg says he lost $6,500.

Explanation:

Walter's accounting profit = total revenues - total accounting costs = $60,000 - $25,000 - ($30,000 x 3%) = $60,000 - $25,000 - $900 = $34,100

Walter's economic profit = accounting profit - opportunity costs

opportunity costs are the money lost for choosing one investment over another

Walter's opportunity costs = ($20,000 x 3%) + $40,000 = $600 + $40,000 = $40,600

Walter's economic profit = $34,100 - $40,600 = -$6,500

Thank you so much! I agree

The answer is as  follows:

Explanation:

Walter paid for supplies = $25,000 ⇒ This is a component of accounting cost

He also pays 3% interest to his uncle on the loan of $30000 = [tex]30000 \times\frac{3}{100}[/tex]

= $900

So, the total accounting cost according to Tyler the accountant:

= 25000 + 900

= $25900

Now, as per Greg the economist:

Explicit Cost = $25900

Implicit cost : If walter would not be a painting business then he would have been working as a high school teacher for $40000 per year and interest on savings account that is $600.

∴ Economic cost according to Greg = Explicit cost + Implicit Cost

= 25900 + 40000 + 600

= 66500

a. Tyler says his costs are $25,900, and Greg says his costs are $66,500.

Explanation:

Tyler the accountant will only consider the explicit costs, wicth are those that involve direct payments. In this case: The liability with the uncle and the supplies purchased.  

Explicit costs = (Interest paid) + (supplies purchased)

Explicit costs =  (30,000 * 0.03) + (25,000)

Explicit costs = 900 + 25,000

Explicit costs = 25,900

Greg the economist will also consider the implicit cost, which is an opportunity cost. This is the benefit of the most valuable choice out of those that were not taken.

Implicit costs = Salary as teacher + Interests earned by savings

Implicit costs = 40,000 + (20,000 * 0.03)

Implicit costs = 40,000 + 600

Implicit costs = 40,600

Total cost acording to Greg = Explicit cost +  Implicit cost

Total cost acording to Greg = 25,900 + 40,600

Total cost acording to Greg = 66,500

a. Tyler says his costs are $25,900, and Greg says his costs are $66,500.

Explanation:

We know accounting cost is the expenditure made on ingredients by the company which is, $25000 that Walter paid for supplies last year. Walter also paid 3 % interest to his uncle,

Interest to the uncle = (30000*3)/ 100

                                   = $900

total accounting cost that an accountant quotes = 25000 + 900

                                                                                 = $25,900

According to the economist explicit cost is $25900. We also include implicit cost in it. If Walter would not be a business then he would be earning $40000 as teacher and $600 interest from savings bank account.

total economic cost according to economist = 25900 + 40000 + 600

                                                                           = $66,500

According to Tyler the accountant the costs are $25,900 and Greg says the costs are $66,500.

Explanation:

COST AS PER TYLER -

According to Tyler( accountant) , Walters accounting cost will include the expenses which have been incurred on the painting business, so it will include the expenses paid by Walter on supplies and the interest he pays to his uncle.

Accounting cost = $25,000 + $30,000 x 3%

                           = $25,000 + $900

                           = $25,900

COST AS PER GREG -

According to Greg (economist) , Walters economic cost will include both the explicit cost and implicit cost. The explicit cost is $25,900 and the implicit cost is the opportunity cost which will include the interest that Walter could have earned on savings account and the salary as a teacher.

Economic cost = $25,900 + $40,000 + $20,000 x 3%

                         = $25,900 + $40,000 + $600

                         = $66,500

Option A is correct.

Tyler says his costs are $25,900, and Greg says his costs are $66,500.

Explanation:

We know accounting cost is the expenditure made on ingredients by the company which is, $25000 that Walter paid for supplies last year. Walter also paid 3 % interest to his uncle,

Interest to the uncle is = (30000*3)/ 100

Interest to the uncle is = $900

Thus total accounting cost that an accountant quotes equal to, 25000 + 900 = $25,900

According to the economist explicit cost is $25900. We also include implicit cost in it. If Walter would not be a business then he would be earning $40000 as teacher and $600 interest from savings bank account. Thus his economic cost according to economist would be, = 25900 + 40000 + 600

Cost according to the economist = $66,500

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