Jamie Is Considering Leaving Her Current Job That Pays 7,500

Jamie Is Considering Leaving Her Current Job Which Pays 75000 Per Y

Jamie is contemplating leaving her current job that pays $75,000 annually to establish a new company focused on developing smartphone applications. Based on market research, her projections indicate sales of approximately 50,000 units in the first year, at a selling price of $4 per unit. The company expects annual overhead costs and operating expenses totaling $145,000. Jamie anticipates a profit margin of 20 percent, which exceeds her largest competitor, Apps, Inc., by 5 percent. Given this scenario, the assignment requires calculating her first-year accounting costs, implicit costs, opportunity costs, and the revenue needed to attain positive accounting and economic profits if the selling price declines.

Paper For Above instruction

Introduction

Starting a new business involves numerous financial considerations that influence decision-making and potential profitability. In Jamie's case, evaluating her costs and the revenue necessary for profitability provides insights into the viability of her entrepreneurial venture. This paper systematically analyzes her accounting costs, implicit costs, opportunity costs, and the revenue thresholds for positive accounting and economic profits, considering potential variations in sales pricing.

Calculation of Accounting Costs

Accounting costs refer to explicit, monetary expenses incurred during business operations. For Jamie's first-year venture, the explicit costs comprise her overheads and operating expenses. As provided, these are $145,000 annually. Additionally, her opportunity cost—foregone salary from her current job—is considered an implicit cost but does not factor into accounting costs, which focus solely on out-of-pocket expenses.

Therefore, her first-year accounting costs (expenses) are:

• Overhead and operating expenses: $145,000

However, actual accounting costs can also include other explicit costs if applicable (e.g., marketing, equipment), but based on the given data, only overhead and operating expenses are specified.

Implicit Costs

Implicit costs represent the opportunity costs of utilizing resources without direct payment. For Jamie, the most significant implicit cost is her forgone salary of $75,000 from her current job. This opportunity cost reflects the income she sacrifices to pursue her entrepreneurial venture.

Therefore:

• Forgone salary: $75,000
• Other implicit costs: Assuming no other implicit costs are provided, the primary is her salary loss.

Her implicit costs during the first year, therefore, total $75,000.

Opportunity Costs

Opportunity costs encompass both explicit and implicit costs. In Jamie's case, these include her explicit expenses ($145,000 for overhead and operating expenses) plus her implicit cost of $75,000 representing her foregone salary.

Total opportunity costs:

$145,000 (explicit) + $75,000 (implicit) = $220,000

This total reflects the value of the next best alternative—her current job—foregone due to her decision to start her own business.

Revenue Needed for Positive Accounting Profits

Accounting profit is calculated as total revenue minus explicit costs. To earn positive accounting profits, revenue must exceed explicit costs.

Given:

- Overhead and operating expenses: $145,000

- Sales volume: 50,000 units

- Price per unit: $4

Total revenue at the projected price:

50,000 units × $4 = $200,000

Since total revenue at $4 per unit is less than $145,000 — specifically, $200,000, which exceeds $145,000 — profitable accounting outcomes depend on whether sales remain at or above this level. To find the minimum revenue for positive accounting profit:

Revenue must be > $145,000

Therefore, with the selling price unchanged at $4:

- Revenue = units × price

- Units = Revenue / price

- Units needed for break-even: 145,000 / 4 = 36,250 units

Since she plans to sell 50,000 units, her projected revenue at $4 per unit ($200,000) covers her explicit costs, resulting in a positive accounting profit:

$200,000 - $145,000 = $55,000

Therefore, at the planned sales volume and price, Jamie would earn a positive accounting profit of $55,000.

If the selling price drops, to determine the revenue needed for positive accounting profit, the selling price per unit (P) must satisfy:

Total Revenue (TR) > $145,000

TR = Units × P

=> Units × P > $145,000

=> P > $145,000 / 50,000 = $2.90 per unit

Thus, even if the price drops to just above $2.90, Jamie can still generate a positive accounting profit, assuming she maintains sales of 50,000 units.

Revenue Needed for Positive Economic Profits

Economic profit considers both explicit and implicit costs. It is calculated as:

Economic Profit = Total Revenue - Total Costs (explicit + implicit)

For Jamie to achieve positive economic profit:

Total Revenue > Total Opportunity Costs

Total opportunity costs = $220,000, as previously calculated.

The total revenue at the current expected sales volume:

TR = 50,000 × P

To obtain positive economic profit:

50,000 × P > $220,000

P > $220,000 / 50,000 = $4.40 per unit

If the selling price is below $4.40, Jamie's venture would result in economic losses, given her opportunity costs.

Alternatively, if her selling price remains at $4, her total revenue at 50,000 units:

$200,000

To find the revenue needed for positive economic profit at the original sales volume:

Total revenue needs to be greater than $220,000.

Hence, revenue = 50,000 × P > $220,000

P > $4.40

or

Total revenue > $220,000

In dollar terms, she needs revenue exceeding $220,000, which implies:

Selling price per unit: P > $4.40

Total revenue: P × 50,000 > $220,000

Total revenue for positive economic profit: any amount above $220,000.

Summary:

- For positive accounting profit: revenue > $145,000 (or price > $2.90 at 50,000 units).

- For positive economic profit: revenue > $220,000 (or price > $4.40 at 50,000 units).

Conclusion

Jamie’s decision to pursue her entrepreneurial project involves understanding the critical financial thresholds that ensure profitability. Her first-year accounting costs are primarily $145,000 in explicit expenses, while her implicit costs—opportunity costs—are $75,000. Combining these, her total opportunity costs amount to $220,000. To secure positive accounting profits, she needs revenues exceeding her explicit costs, which are achievable at a selling price above $2.90 per unit, given her expected sales volume. To earn positive economic profits, considering her implicit costs as well, her revenues must surpass $220,000, translating to a required per-unit price above $4.40. These calculations highlight the importance of sales volume, price setting, and cost management for startup success.

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