Suppose a company incurs the following costs: Labor-$500, Equipment-$400, Materials-$100. It owns the building, so it does not have to pay the usual $800 in rent.
1. What is the total accounting cost?
2. What is the total economic cost?
3. How would accounting and economic costs change if the company sold the building and then leased it back?
Total accounting cost = 500+400+100 = 1,000
The expert defines accounting cost and economic cost for a company is determined.