Statistics Solutions

(See Solution) Fred Davis, owner of the X.L.T. Co., a maker of children's toys, has just received his income statement. Fred purchased X.L.T. for $500,000

Question: Fred Davis, owner of the X.L.T. Co., a maker of children's toys, has just received his income statement. Fred purchased X.L.T. for $500,000 one year ago. Fred financed the sale by borrowing $300,000 at 10% per year and the remaining $200,000 from his savings that where earning 2%.. To manage X.L.T., Fred found it necessary to resign his position at Mattel where his earnings were a salary of $60,000 plus a monthly bonus of $1,000. Fred expects a minimum profit of $12,000 from the purchase of X.L.T. Given this information and the income statement below, answer question A thru C.

X.L.T. Co.

Income statement

Operating Expenses
Net Sales $370,000 Wages $25,000
Cost of Goods 150,000 Interest 30,000
Gross profit $220,000 Other 85,000
$140,000
  1. Calculate X.L.T.’s accounting profit.
  2. List X.L.T.’s implicit costs and their corresponding value.
    Implicit Cost Dollar Amount
  3. Calculate X.L.T.’s economic profit.

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