Laura's Pizza Place Incurs $800,000 Per Year in Explicit Costs

question 28

Multiple Choice

Laura's Pizza Place incurs $800,000 per year in explicit costs and $100,000 in implicit costs.The restaurant earns $1.3 million in revenues and has $5 million in net worth.Based on this information, what is the economic profit for Laura's Pizza Place?

• A)$200,000
• B)$400,000
• C)$500,000
• D)$2.8 million

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Definitions:

Standard Costs

The estimated costs of materials, labor, and overhead allocated to produce a product or perform a service under normal conditions.

Direct Labor-Hours

The total hours worked by employees who are directly involved in the production process.

Depreciation

The process of allocating the cost of a tangible asset over its useful life, representing the asset's consumption, wear and tear, or obsolescence.

Fixed Overhead

The total of all costs that do not vary with production level, including items such as rent, property taxes, and salaries of permanent staff.