The Accompanying Table Outlines the Explicit and Implicit Costs Incurred

question 110

Essay

The accompanying table outlines the explicit and implicit costs incurred by a small graphic design company in France that takes in annual revenues equal to $250,000.

a.What would an accountant compute as profits for a year?
b.What would this company's economic profits equal for a year?
c.What would we expect to happen in the long run for this market? Why?

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Definitions:

Variable Overhead

Refers to the costs that fluctuate with changes in production volume, such as utilities or materials that are consumed directly as a result of manufacturing activities.

Labor Rate Variance

The difference between the actual wage rate paid to workers and the expected or standard wage rate, multiplied by the actual hours worked.

Labor Efficiency Variance

The difference between the actual hours worked and the standard hours expected to produce a certain level of output, multiplied by the standard labor rate.

Variable Overhead

Costs of production that fluctuate with changes in production volume, such as utilities or raw materials, not directly tied to labor or capital.