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Accounting Costs and Economic Costs

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Please respond to the following:

A company incurs the following monthly costs:

Labor $400
Equipment $300
Materials $100

It owns the building (which usually rents for $800) that it uses for the business. The owner gave up his $48000 annual salary as a bank manager to run the business. He does not pay himself a salary but draws $500 a week from profit (the total profit from the business).

On a monthly basis-

What is the total accounting cost?

What is the total economic cost?

How would accounting costs change and how would economic costs change if
the company sold the building and then leased it back at $800?

When you reply, please provide your rationale and then give me a summary answer in the following format.

Costs before the Lease:

(List items and $)

Accounting cost =

Economic Cost =

Costs after the Lease:

(List items and $)

Accounting =

Economic =

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Accounting Costs and Economic Costs are depicted.

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A company incurs the following monthly costs:

Labor $400
Equipment $300
Materials $100

It owns the building (which usually rents for $800) that it uses for the business. The owner gave up his $48000 annual salary as a bank manager to run the business. He does not pay himself a salary but draws $500 a week from profit (the total profit from the business).

On a monthly basis-

What is ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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