Implicit Cost Example

The JJVB Bottling company

The Facts:

The assumptions: JJVB accountant depreciates equipment over 5 years (straight line). Interest rate for the year averaged 10%.


Questions:


Accounting Economic
Revenue: 100,000 Revenue 100,000
Costs:
    Equipment
30,000 Equipment 30,000
    Bottles
15,000 Bottles 15,000
    Labor
20,000 Labor 20,000
    Cash
10,000 Cash 10,000
    Inventory
20,000 Inventory 20,000
    Depreciation
6,000
Depreciation 2,000
Interest 5,000
Jack's time 30,000
Jill's time 3,000
Normal Profit 3,000
Cost: 101,000 138,000
Profit: -1,000 -38,000
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