Question
Frank was a bricklayer, but a year ago, he decided to start his own business as an outdoor furniture manufacturer.Frank has two sisters: Amy is
Frank was a bricklayer, but a year ago, he decided to start his own business as an outdoor furniture manufacturer.Frank has two sisters: Amy is an accountant and Judith is an economist.Each sister calculates Frank's total cost and profit for the first year using the following information:
(i)Frank took no income (wages) from the firm.He has a standing offer to return to work as a bricklayer for $30,000 per year.
(ii)Frank rents the machinery he uses from an equipment rental firm.His annual rent is $9000.
(iii)Frank owns the garage that he uses as his factory, but he could rent it out at $3000 per year.
(iv)For working capital, Frank used $10,000 of his own money and borrowed another $30,000 at the market rate of interest of 10% per year.
(v)Frank employs an assistant at an annual salary of $20,000.
(vi)The cost of materials during the first year was $40,000.
(vii)Frank's revenue for his first year was $100,000.
(a)What is Frank's profit as calculated by Amy?
(b)What is Frank's profit as calculated by Judith?
(c) What advice would Judith have for Frank, based on her calculation of Frank's profit.
(1.5 + 2.5 + 2 = 6 marks)
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