Question 27 Marks

John was a high school teacher earning a net salary of $54,000 per year. After working for one year, he quit his job to start his own milk bar business. In order to start the business, John borrowed $40,000.00 from the bank and was paying 5 percent interest per year. Also, John withdrew $ 50,000 from his savings account. He had been earning 5 percent interest per year for this account.

John's first year of business can be summarised as follows:

Item Amount $

Revenue- Fresh milk section 250,000

Revenue- Yogurt Section 180,000

2 Cashiers expense (wages per worker) (40,000)

Truck expense (80,000)

Manager expense (60,000)

Milk sales assistant expense (30,000)

Equipment expense (50,000)

Motorcycle expense to ease movement in city (30,000)

2 milk freezers (cost per freezer) (5000)

Based on your calculations of accounting profit and economic profit, would you advise John to return to his teaching job or continue with the milk bar business?Show your work!(7 marks)