Reference no: EM132262471

The accounting department at Frosty Cola has worked up the following figures for the year:

Price per unit of Frosty Cola                         $1.75

Number of bottles of Frosty Cola sold          450,000

Utilities expense                                            $170,000

Telephone expense                                        $105,000

Accounting depreciation                                $30,000

Wages paid to employees                              $110,000

Materials expense                                          $150,000

a) The controller wants you to calculate the accounting profit to show the CFO.

b) However, you remember from your managerial economics course that managers sometimes like to see the economic profit of a business as well. Accordingly, you ask the accounting department for the following additional data:

Total money invested in Frosty Cola over time        $1,200,000

Economic depreciation                                             $40,000

Current market interest rate                                        4 percent

Owner's normal profit estimate                                $12,000

You decide to calculate economic profit and show this to the CFO as well.

c) The CFO is impressed that you wished to show her economic profit. She asks if the owner of the company made her normal profit last year. What would you tell her and why?