Bud opened a flower shop. He rented a building for $9,000 a year. To buy equipme

Question

Bud opened a flower shop. He rented a building for $9,000 a year. To buy equipment for the store, he withdrew $10,000 from his savings account, which earned an annual interest rate of 3 percent. During the first year of operation, Bud paid $4,000 for utilities and $12,000 to his suppliers. The store's total annual revenue was $55,000. The market value of the store's equipment at the end of the year was $8,000. If Bud had not started this business, he would have continued to work as an employee at another flower shop for $30,000 a year.

What were Bud's total explicit costs of running his business?

Explanation / Answer

SOLUTION:

Explicit cost Rent of building 9,000 Interest on saving account 300 Utilities 4,000 Supplier 12000 25,300

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