Each year, a bicycle repair shop receives $120,000 in total revenue. Annual costs include $40,000 for labor, $5,000 in parts, and $30,000 in equipment rental. The owner of the bicycle repair shop owns the building and could rent it out for $12,000 per year. She could be making $50,000 per year if she worked as a project manager instead. What is the owner's accounting profit?

Question

Quizplus · Accepted Answer

Accounting profit is calculated by subtracting explicit costs from total revenue. In this case, explicit costs include labor ($40,000), parts ($5,000), and equipment rental ($30,000), totaling $75,000. Subtracting this from the total revenue ($120,000) gives an accounting profit of $45,000.

Each Year, a Bicycle Repair Shop Receives $120,000 in Total