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  • Analytical Issue in in Financial Accounting Q&A 21

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    Adil Ali
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    The document is an explanation of how to calculate economic profit from a set of multiple choice answers. Economic profit is calculated by subtracting total revenue by explicit costs (fixed and variable costs) and implicit costs, which are the opportunity costs of assets used. Only answer A, which includes opportunity costs of all inputs, correctly identifies all the costs (explicit and implicit) that must be subtracted from revenue to yield economic profit.

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    Financial Accounting

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    The document is an explanation of how to calculate economic profit from a set of multiple choice answers. Economic profit is calculated by subtracting total revenue by explicit costs (fixed and variable costs) and implicit costs, which are the opportunity costs of assets used. Only answer A, which includes opportunity costs of all inputs, correctly identifies all the costs (explicit and implicit) that must be subtracted from revenue to yield economic profit.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    6 views1 page

    Analytical Issue in in Financial Accounting Q&A 21

    Uploaded by

    Adil Ali
    The document is an explanation of how to calculate economic profit from a set of multiple choice answers. Economic profit is calculated by subtracting total revenue by explicit costs (fixed and variable costs) and implicit costs, which are the opportunity costs of assets used. Only answer A, which includes opportunity costs of all inputs, correctly identifies all the costs (explicit and implicit) that must be subtracted from revenue to yield economic profit.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    Question 

    ‐ Analytical Issues in Financial Accounting   
    Which of the following costs, when subtracted from total revenue, yields economic profit?   
    A. Opportunity costs of all inputs.   
    B. Recurring operating costs.   
    C. Variable costs.   
    D. Fixed and variable costs.   
     

    Answer: 
    A. Economic profit is calculated as follows: Revenue − Explicit Costs − Implicit Costs = Economic ProfitImplicit 
    costs are the opportunity costs of the assets that are used in the operation of the business. Of the choices 
    presented, this is the best choice.   
    B. Economic profit is calculated as follows: Revenue − Explicit Costs − Implicit Costs = Economic ProfitRecurring 
    operating costs are only part of the explicit costs of the company so this is not how economic profit is calculated.   
    C. Economic profit is calculated as follows: Revenue − Explicit Costs − Implicit Costs = Economic Profit Variable 
    costs are only part of the explicit costs of the company so this is not how economic profit is calculated.   
    D. Economic profit is calculated as follows: Revenue − Explicit Costs − Implicit Costs = Economic Profit 
    Fixed and variable costs represent only the explicit costs of the company so this is not how economic profit is 
    calculated.   

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