dolution

Evaluating Performance in a Small Business

A few years ago, a construction manager earning $70,000 per year working for a regional home builder decided to open his own home building company. He took $100,000 out of one of his investment accounts that had been earning around 6% a year and used that money to start up the business. He worked hard the first year, hiring one employee (his only salary cost for the business was the $40,000 paid to this employee), and generated total sales of $1,000,000. Total material and subcontracted labor costs for the year were $900,000. Calculate accounting profit. What are the opportunity costs for the manager of being in this business relative to returning to his old job? What is the economic profit of the business?