Lee, a programmer, earned $35,000 in 2015, but in 2016, he began to manufacture body boards. After
Question:
Lee, a programmer, earned $35,000 in 2015, but in 2016, he began to manufacture body boards. After one year, he submitted the following data to his accountant.
• He stopped renting out his cottage for $3,500 a year and used it as his factory.
The market value of the cottage increased from $70,000 to $71,000.
• He spent $50,000 on materials, phone, utilities, etc.
• He leased machines for $10,000 a year.
• He paid $15,000 in wages.
• He used $10,000 from his savings account, which pays 5 percent a year interest.
• He borrowed $40,000 at 10 percent a year from the bank.
• He sold $160,000 worth of body boards.
• Normal profit is $25,000 a year.
1. Calculate Lee’s explicit costs, implicit costs, and economic profit in 2016.
2. Lee’s accountant recorded the depreciation on Lee’s cottage during 2016 as $7,000. What did the accountant say Lee’s profit or loss was in 2016?
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