Jane makes 1000 items a day. Each day she spends 8 hours producing those items. If hired elsewhere she could have earned $250 an hour. The item sells for $15 each. Production occurs seven days a week. If the explicit costs total $150,000 per month, what is her accounting profit? a. $300,000 b. $240,000 c. $60,000 d. $450,000

The correct answer is A.

Explanation:

Giving the following information:

Jane makes 1000 items a day. Each day she spends 8 hours producing those items. If hired elsewhere she could have earned $250 an hour. The item sells for $15 each. Production occurs seven days a week. If the explicit costs total $150,000 per month.

First, we need to calculate her actual profit. Then, we compare it to the hypothetical income in another job.

Actual income = Total revenue - total costs

Total production = 1,000*30 = 30,000

Actual income = 30,000*15 - 150,000 = $300,000

Now, assuming that the other job is also 7 days a week:

Hypothetical income = 250*8*30 = $60,000

It is considerably more profitable her actual profession.

The accounting profit doesn't consider the opportunity cost of the other job.