Bob recently quit a job that paid him $2,500 per month in order to buy a bed and breakfast house in a remote corner of Vancouver Island. The motivation for his life style change came from a surprise inheritance from his long lost uncle who he had never met. His uncle, feeling guilty for never sending birthday money to his sister's son, had left Bob $65,000 dollars in his will. Bob's mom told him to put the money in a corporate bond that was paying 9% return annually. Instead Bob decided to check out of the busy city life and buy the B&B. For the down payment and renovations, Bob used $50,000 of his inheritance. It turned out that Bob's remote B&B was much more popular than expected and his two rooms were rented out for a total 425 nights combined between them, in the first 12 months of operation! The nightly rental rate was $200. Bob paid the following out-of-pocket costs during the first year of operating the bed and breakfast business. Monthly Interest he pays on a bank loan $ 2,100 Utility and Maintenance Expenses quarterly $ 4,140 Property Taxes and Insurance annually $ 2.210 Food for the year (cheap breakfasts!) $ 3,000 Part-Time Cleaning Staff monthly $ 300 Other (supplies, etc) in total for the year $ 1,330 1) Calculate the total annual explicit costs. Show calculations. Explain what Explicit Costs actually are (define). |