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Tutorial 3 – BUSINESS AND ECONOMIC PROFIT
1. A recent engineering graduate turns down a job offer at Rs. 30,000 per year to start his own business. He will invest Rs. 50,000 of his own money, which has been in a bank account earning 7% interest per year. He also plans to use building he owns that has been rented for Rs. 1500 per month. Revenue in the new business during the first year was Rs. 107,000, while other expenses were: Advertising Rs, 5000, Rent Rs. 10,000, Taxes Rs. 5000, Employees salaries Rs. 40,000, Supplies Rs. 5,000. Prepare two income statements, one using the traditional accounting approach and one using the opportunity cost approach to determine profit.
2. Tempo electronics has an inventory of 5000 unique electronic chips originally purchased at Rs. 2.50 each; their market value is now Rs. 5/- each. The production dept. has proposed to used thses by putting each one together with Rs. 6/- worth of labor and other materials to produce a watch that would be sold for Rs. 10. Should that proposal be implemented? Explain
3. Smith a college sophomore generally spends his summers working on the university maintenance crew at a wage rate of Rs. 6/- per hour for 40 hours week. Overtime work is always available at an hourly rate of 1.5 times the regular wage rate. For the coming summer, he has been offered the pizza stand concession at the student union building, which would have to be open 10 hours per day, six days a week. He estimates that he can sell 100 pizzas a week at Rs. 6/- each. The production cost of each pizza is Rs. 2/- and the rent of the stand is Rs. 150 per week. Should Smith take the pizza concession? ANS:
4. An executive’s employment contract calls for salary of Rs. 400,000 per year, a bonus equal to 2% of profit in excess of Rs. 10,000,000 and an option to buy 5000 share of common stock at a price of Rs. 50 per share. The market price of the stock is Rs. 70 per share and the firm’s profits for the current year are...
1. A recent engineering graduate turns down a job offer at Rs. 30,000 per year to start his own business. He will invest Rs. 50,000 of his own money, which has been in a bank account earning 7% interest per year. He also plans to use building he owns that has been rented for Rs. 1500 per month. Revenue in the new business during the first year was Rs. 107,000, while other expenses were: Advertising Rs, 5000, Rent Rs. 10,000, Taxes Rs. 5000, Employees salaries Rs. 40,000, Supplies Rs. 5,000. Prepare two income statements, one using the traditional accounting approach and one using the opportunity cost approach to determine profit.
2. Tempo electronics has an inventory of 5000 unique electronic chips originally purchased at Rs. 2.50 each; their market value is now Rs. 5/- each. The production dept. has proposed to used thses by putting each one together with Rs. 6/- worth of labor and other materials to produce a watch that would be sold for Rs. 10. Should that proposal be implemented? Explain
3. Smith a college sophomore generally spends his summers working on the university maintenance crew at a wage rate of Rs. 6/- per hour for 40 hours week. Overtime work is always available at an hourly rate of 1.5 times the regular wage rate. For the coming summer, he has been offered the pizza stand concession at the student union building, which would have to be open 10 hours per day, six days a week. He estimates that he can sell 100 pizzas a week at Rs. 6/- each. The production cost of each pizza is Rs. 2/- and the rent of the stand is Rs. 150 per week. Should Smith take the pizza concession? ANS:
4. An executive’s employment contract calls for salary of Rs. 400,000 per year, a bonus equal to 2% of profit in excess of Rs. 10,000,000 and an option to buy 5000 share of common stock at a price of Rs. 50 per share. The market price of the stock is Rs. 70 per share and the firm’s profits for the current year are...