Question
John was a high school teacher earning a net salary of $54,000 per year. After working for one year, he quit his job to start
John was a high school teacher earning a net salary of $54,000 per year. After working for one year, he quit his job to start his own milk bar business. In order to start the business, John borrowed $40,000.00 from the bank and was paying 5 percent interest per year. Also, John withdrew $ 50,000 from his savings account. He had been earning 5 percent interest per year for this account.
Johns first year of business can be summarised as follows:
Item | Amount $ |
Revenue- Fresh milk section | 250,000 |
Revenue- Yogurt Section | 180,000 |
2 Cashiers expense (wages per worker) | (40,000) |
Truck expense | (80,000) |
Manager expense | (60,000) |
Milk sales assistant expense | (30,000) |
Equipment expense | (50,000) |
Motorcycle expense to ease movement in city | (30,000) |
2 milk freezers (cost per freezer) | (5000) |
Based on your calculations of accounting profit and economic profit, would you advise John to return to his teaching job or continue with the milk bar business? Show your work!
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