Dimaculangan, Angel

A1A MANECO

Mrs. De Silva is the principal of a private high school in Lipa City. Currently, she is
earning P 30,000 per month and has an additional monthly allowance of P5, 000 for
transportation and food. On top of this, she is also accepting tutorial classes every
Saturday and Sunday where she is earning P 6,000 per month (tutorial classes are being
offered for the entire year).  One evening, her husband talked to her about his plans for
putting up a restaurant business.  Her husband presented the following financial
statements and they studied the feasibility of the said business.

Projected Revenue in the first year of the business – P 1, 500, 000

Expenses
rent – P 5,000 per month
utilities – P 2,000 per month
monthly wages – P 4,000 per worker (2 workers needed)
Ingredients and materials – P 30,000 per month
Permit, taxes, insurance, and other miscellaneous fees - P 10,000 per year
If the couple will pursue the restaurant business, then Mrs. De Silva and her husband will
have to resign from their jobs.  Mr. De Silva is also a teacher and he is earning P 40,000
per month.

Solution:
 Total Revenue = P 1, 500, 000
 Explicit Cost = (5,000 x 12) rent + (2,000 x 12) rent + 2 (4,000 x 12) wages +
(30,000 x 12) ingredients & materials + 10,000
= 60,000 + 24,000 + 96,000 + 360,000 + 10,000
= P 550,000
 Implicit Cost = (30,000 x 12) + (5,000 x 12) + (6,000 x 12)
= 360,000 + 60,000 + 72,000
= P 492,000
 Accounting Profit = 1, 500, 000 – 550,000
= P 950,000
 Economic Profit = 1, 500, 000 – (550,000 + 492,000)
= 1,500,000 – 1,042,000
= P 458,000

2. With regards to putting up your business, based on what we’ve come up it has a highly
feasible. Probable that you’ll gain actual earnings amounting to P950,000 which
definitely covered the P458,000 forgone value incurred so it’s a great opportunity
cost.
Dimaculangan, Angel
A1A MANECO