Reference no: EM132168907
At the beginning of the year, a high school football coach decided to leave his job, give up his annual coaching salary of $55,000 and open his own sporting goods store. At the end of the year, this is the store's income statement:
Revenues
Revenue from sales of goods and services............................................................... $210,000
Operating costs and expenses:
Cost of products and services sold............. $82,000
Selling expenses............................................ $6,000
Administrative expenses............................... $12,000
Total operating costs and expenses........ $100,000
Income from operations.................................... $110,000
Interest expense (bank loan)........................... $14,000
Non-recurring expenses to start business..... $24,000
Net income.......................................................... $72,000
To get the sporting goods store opened, the former coach used $75,000 of a personal savings account that earns 5 percent annually. The coach opened his store in a building that he owns. Prior to opening his store, he rented the building for $35,000 per year.
a. What is the coach's explicit cost?
b. What is the implicit cost?
c. What is the total opportunity cost to the coach of his first year of business?
d. What is the accounting profit?
e. What is the economic profit?
f. What advice do you have for the coach?