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Mr. Lim works as a mechanical engineer and earns RM10,000 per month. He has decided to open a car grooming center. To open the center, he needs to rent a workshop for RM5,000 per month and spend RM20,000 per month on labor, materials, and other expenses.

(a) Based on the economic profit approach, calculate the amount of monthly revenue that Mr. Lim must earn in order to break even. (Note: Breakeven occurs when TR = TC).

(b) Calculate the amount of monthly revenue that Mr. Lim must earn if he targets RM50,000 of accounting profit per month.

Answer :

The amount of monthly revenue that Mr. Lim must earn if he targets RM50,000 of accounting profit per month is RM85,000.

(a) Based on the economic profit approach, the amount of monthly revenue that Mr. Lim must earn in order to break even is RM35,000. This is because break-even occurs when TR = TC. MR stands for marginal revenue, MC stands for marginal cost, FC stands for fixed cost, and VC stands for variable cost.

Economic Profit

=TR-(FC+VC)

Economic Profit = Total Revenue (TR) – Total Cost (TC)

If TR = TC, then the economic profit is zero.

(b) This is because the formula for accounting profit is:

Accounting Profit = Total Revenue – Total Cost (Explicit Costs + Implicit Costs)

Accounting Profit = TR – Total Cost

Explicit costs are the out-of-pocket expenses like rent, labour costs, materials, etc. Implicit costs are the opportunity costs, which are the forgone profits from other activities. Therefore, if Mr. Lim wants an accounting profit of RM50,000, then:

Accounting Profit = Total Revenue – Total Cost (Explicit Costs + Implicit Costs)

RM50,000 = TR – RM5,000 – RM20,000 – Implicit Costs

Implicit Costs = RM25,000 TR = RM5,000 (fixed cost) + RM20,000 (variable cost) + RM25,000 (implicit cost) + RM50,000 = RM100,000, which is the amount of revenue that Mr. Lim must earn to achieve an accounting profit of RM50,000.

Learn more about Explicit costs: https://brainly.com/question/15112907

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