Pac-Link Technologies Is a Partnership Owned and Operated by Tom

question 22

Essay

Pac-link Technologies is a partnership owned and operated by Tom Kennedy and Mike McConnell. To recognize the fact that the partners have invested significantly different amounts of capital and that Tom works full time, while Mike works only part time, the partnership agreement states that the profit will be allocated as follows: An interest allowance of 3% of each partner's beginning capital balance plus a salary allowance of $ 85 per hour worked. Any remaining profit or loss after calculation of these allowances will be allocated equally. At January 1, 2021, Tom's capital account balance was $ 15,000 and Mike's was $ 20,000. During the year ended December 31, 2021, Tom worked 1,200 hours and Mike worked 550 hours.
Instructions
a) Calculate each partner's share of profit assuming that profit for the year ended December 31, 2021 is $ 196,000.
b) Calculate each partner's share of profit assuming that profit for the year ended December 31, 2021 is $ 88,000.

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Definitions:

Labor

The human effort, both physical and mental, employed in the production of goods and services.

Value of Marginal Product

The increment in revenue a firm realizes from employing one additional unit of input, holding all other factors constant.

Output

The quantity of goods or services produced by a company, sector, or economy.

Diminishing Marginal Product

A principle stating that as additional units of a variable input are added to a fixed input, the marginal product of the variable input eventually decreases.