If a firm uses $1 million worth of raw materials; pays wages of $500,000; rent of $100,000; and interest of $100,000, and sells its output for $2 million, its net earnings before taxes are:
A)$300,000.
B)$400,000.
C)$700,000.
D)$1,000,000.
E)$2,000,000.

Question

Quizplus · Accepted Answer

Net earnings before taxes are calculated by subtracting total expenses from total revenue. The firm's total expenses are $1 million (raw materials) + $500,000 (wages) + $100,000 (rent) + $100,000 (interest) = $1.7 million. The revenue from selling the output is $2 million. Therefore, net earnings before taxes are $2 million - $1.7 million = $300,000.

If a Firm Uses $1 Million Worth of Raw Materials;