Question

QUESTION #4 Rodriguez operates a variety store that provides annual revenue of $480,000. Each year, he pays $25,000 in rent for the store, $15,000 in business taxes, and $350,000 on products to sell. He estimates he could put the $80,000 he has invested in the store into his friend's restaurant business instead and earn an annual 20 percent profit on his funds. He also estimates that he and his family could earn a total annual wage of $80,000 if they worked somewhere other than the store What is the accounting profit of the variety store? What is the economic profit? (20 points) (a) (c) Should Rodriguez consider closing down this business? Why? (10 points) (b) In what way is economic profit superior to accounting profit as an indicator of the overall performance of this business? Given the advantages of economic profit as a performance indicator, explain why the concept of economic profit is not often used in business (10 points)

Answer 1

a) Accom+i 4 35 OOO CRemt) onsimess produichiem) :. Accouwg protit - Econo mic protit Accounting Probt OPPit coSA TRか makS more Post se tna lownima auosing alown har a birn Shoula ohose dawn im busim eSS. n estimared and So me time diffant to meas wu eco nomic Pobit