Reference no: EM13205806
At the beginning of the year, an audio engineer quit his job and gave up a salary of $175,000 per year in order to start his own business, Sound Devices, Inc. The new company builds, installs, and maintains custom audio equipment for businesses that require high-quality audio systems. Apartial income statement for Sound Devices, Inc., is shown below: 2010 Revenues Revenue from sales of product and services .$970,000 Operating costs and expenses Cost of products and services sold 355,000 Selling expenses .155,000 Administrative expenses 45,000 Total operating costs and expenses $555,000 Income from operations $415,000 Interest expense (bank loan) . 45,000 Legal expenses to start business 28,000 Income taxes 165,000 Net income $177,000
Toget started, the owner of Sound Devices spent $100,000 of his personal savings to pay for some of the capital equipment used in the business. In 2010, the owner of Sound Devices could have earned a 15 percent return by investing in stocks of other new businesses with risk levels similar to the risk level at Sound Devices.
a .What are the total explicit, total implicit, and total economic costs in 2010?
b .What is accounting profit in 2010?
c . What is economic profit in 2010?
d .Given your answer in part c , evaluate the owner's decision to leave his job to start Sound Devices.
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: Toget started, the owner of Sound Devices spent $100,000 of his personal savings to pay for some of the capital equipment used in the business. In 2010, the owner of Sound Devices could have earned a 15 percent return by investing in stocks of oth..
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