John was a high school teacher earning $ 80,000 per year. He quit his job to start his own business in pizza catering. In order to learn how to run the pizza catering business, John enrolled in a TAFE to acquire catering skills. Johns course was for 3 months. John had to pay $2,000 as tuition for the 3 months.
After the training, John withdrew $110,000 from his savings account. He had been earning 5 percent interest per year for this account. He also borrowed $50,000.00 from his friend whom he pays 6 percent interest per year. Further, to start the business John used his own premises. He was receiving $12,000 from rent per year. Finally, to start the business John uses $50,000 he had been given by his father to go on holiday to USA.
Johns first year of business can be summarised as follows:
Item Amount $
Revenue- Pizza Section 400,000
Revenue- Beverages Section 190,000
2 Cashiers (wages per worker) 55,000
Pizza ingredients 50,000
3 Pizza bakers (wages per baker) 60,000
Based on your calculated accounting profit and economic profit, would you advise John to return to his teaching job? Show your work (10 marks)