Scenario 8.1
Jane left her job at Siemens and started her own boutique.She used to earn $50,000 annually at Siemens.She took a loan of $10,000 and used $20,000 from her personal savings to begin her venture.She agreed to repay the loan with 10% interest.Her business is bringing in $80,000 annually.She has rent and labor expenses of $15,000.Also assume that Jane could have used her own money i.e.$20,000 to buy stocks in Intel which would have returned 5% to her last year.
-Refer to Scenario 8.1 and calculate Jane's accounting profit.
A)$50,000.
B)$65,000.
C)$80,000.
D)$64,000.
E)$35,000.

Question

Scenario 8.1
 Jane left her job at Siemens and started her own boutique.She used to earn $50,000 annually at Siemens.She took a loan of $10,000 and used $20,000 from her personal savings to begin her venture.She agreed to repay the loan with 10% interest.Her business is bringing in $80,000 annually.She has rent and labor expenses of $15,000.Also assume that Jane could have used her own money i.e.$20,000 to buy stocks in Intel which would have returned 5% to her last year.
-Refer to Scenario 8.1 and calculate Jane's accounting profit.
A)$50,000.
B)$65,000.
C)$80,000.
D)$64,000.
E)$35,000.

Quizplus · Accepted Answer

Jane's accounting profit can be calculated as:

Revenue - Expenses 
= $80,000 - ($15,000 + $10,000*(1+10%))
= $80,000 - $26,000
= $54,000

However, this calculation only takes into account the explicit costs of running her business (rent, labor, and loan repayment). It does not take into account the opportunity cost of using her personal savings to start the business instead of investing in stocks.

If Jane had invested her $20,000 in Intel stocks, she would have earned an additional 5% on her investment, or $1,000. Therefore, her economic profit (which takes into account both explicit and implicit costs) would be:

Accounting profit - Opportunity cost 
= $54,000 - $1,000
= $53,000

Therefore, the closest option to Jane's actual economic profit is option D, $64,000, which is the closest option to $53,000.

Scenario 8.1 Jane Left Her Job at Siemens and Started Her