Question
The accounting department at Frosty Cola has worked up the following figures for the year: Price per unit of Frosty Cola $1.75 Number of bottles
The accounting department at Frosty Cola has worked up the following figures for the year:
Price per unit of Frosty Cola $1.75
Number of bottles of Frosty Cola sold 450,000
Utilities expense $170,000
Telephone expense $105,000
Accounting depreciation $30,000
Wages paid to employees $110,000
Materials expense $150,000
a) The controller wants you to calculate the accounting profit to show the CFO.
b) However, you remember from your managerial economics course that managers sometimes like to see the economic profit of a business as well. Accordingly, you ask the accounting department for the following additional data:
Total money invested in Frosty Cola over time $1,200,000
Economic depreciation $40,000
Current market interest rate 4 percent
Owners normal profit estimate $12,000
You decide to calculate economic profit and show this to the CFO as well.
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c) The CFO is impressed that you wished to show her economic profit. She asks if the owner of the company made her normal profit last year. What would you tell her and why?
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