How to Calculate Helen's Accounting Profit?
What is Helen's accounting profit from selling dresses?
Which of the following statements are true?
a. If other cabinetmakers earned $600/week like Helen, it would be attractive for them to enter the market to sell dresses.
b. Helen's accounting profit is $1,400/week from selling dresses.
c. Helen's implicit cost is $600/week in this situation.
d. Helen is earning a normal profit in this situation.
The correct statement is "B. Helen's accounting profit is $1,400/week from selling dresses."
Helen's accounting profit is calculated by subtracting business expenses from sales revenue. In this case, her sales revenue is $6,000/week, and her business expenses are $4,000/week. Therefore, her accounting profit is $6,000 - $4,000 = $2,000/week.
Statement a is not necessarily true. While Helen's take-home pay as a cabinetmaker was $600/week, it doesn't mean that other cabinetmakers would find it attractive to enter the dress-selling market based solely on that income level.
Statement c is incorrect. Implicit costs refer to the opportunity cost of resources used in a business, such as the foregone income from Helen's previous job. In this situation, Helen's implicit cost would be the $600/week she used to earn as a cabinetmaker.
Statement d is not accurate. Helen's earning of an accounting profit of $1,400/week indicates that she is earning more than her explicit costs. However, determining whether she is earning a normal profit, above normal profit, or below normal profit would require additional information about industry standards and competitive returns.
Therefore, option B is the correct answer.
Helen runs her own business selling handmade dresses and receives $6,000/week from sales, with business related expenses being $4,000/week. Her accounting profit can be calculated by deducting the business expenses from the sales revenue.
In this case, Helen's accounting profit is $6,000 - $4,000 = $2,000/week. Therefore, the correct statement is that Helen's accounting profit is $1,400/week from selling dresses.
It is essential to understand how to calculate accounting profit to assess the financial performance of a business accurately. By properly analyzing the revenue and expenses, business owners like Helen can make informed decisions to improve profitability.
For more information on accounting profit and how to calculate it, you can refer to reliable sources or consult with financial experts to gain further insights into managing business finances effectively.