Mr Blowfish Opened a Seafood Store in December

question 242

Essay

Mr. Blowfish opened a seafood store in December. He borrowed $60,000 from a bank at an annual interest rate of 8 percent. He used the funds he borrowed to purchase $60,000 of capital equipment. Over the year, he rented a building for $50,000 a year. During the first year of operation, Blowfish paid $45,000 to his employees, $20,000 for utilities, and $25,000 for raw fish he bought from other firms. In December of the next year, the market value of his capital was $50,000. Blowfish's best alternative to running the seafood store is to work for a grocery store as a sales clerk for $20,000 a year.
a) What is the economic depreciation of Blowfish's capital?
b) What are Blowfish's total opportunity costs?
c) What is Blowfish's economic profit?

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Definitions:

Cost Or Market

An accounting method for inventory valuation, valuing inventory at the lower of its historical cost or market value.

Weighted Average Cost

A method of inventory costing that assigns a weighted average cost to each unit of inventory on hand, based on the cost of goods available for sale and the number of units available.

Perpetual System

An inventory management approach that tracks the sale and purchase of inventory in real-time, providing a continuous account of inventory and cost of goods sold.

Perpetual LIFO

A method of inventory valuation where the last items acquired are the first considered sold in an ongoing, or perpetual, system.