The following is cost information for the Creamy Crisp Donut Company.
-Entrepreneur's potential earnings as a salaried worker = $50,000
-Annual lease on building = $22,000
-Annual revenue from operations = $380,000
-Payments to workers = $120,000
-Utilities (electricity, water, disposal) costs = $8,000
-Value of Entrepreneur's talent in the next best entrepreneurial activity = $80,0000
-Entrepreneur's forgone interest on personal funds used to finance the business = $6,000
Required:
Refer to the data to calculate Creamy Crisp's accounting profit and economic profit.

$230,000 and $94,000

Explanation:

The computation is shown below:

For accounting profit

= Total revenue - explicit cost

where,

Total revenue is $380,000

And, the explicit cost is

= Utilities + payment to workers + annual lease on building

= $8,000 + $120,000 + $22,000

= $150,000

So, the accounting profit is

= $380,000 - $150,000

= $230,000

And, the economic profit is

= Total revenue - explicit cost - implicit cost

where,

total revenue is $380,000

Explicit cost is $150,000

And, the implicit cost is

= Value of Entrepreneur's talent in the next best entrepreneurial activity + Entrepreneur's potential earnings as a salaried worker + Entrepreneur's forgone interest on personal funds used to finance the business

= $80,000 + $50,000 + $6,000

= $136,000

So, the economic profit is

= $380,000 - $150,000 - $136,000

= $94,000

The implicit cost is a type of opportunity cost which can be held for some specific purpose while the explicit cost is the out of pocket cost or the expenses incurred by the firm

answerprotecting competitors;