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).
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 =
Solution Preview
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).
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