A few years ago, a construction manager earning $70,000 per year working for a regional home builder decided to open his own home building company. He took $100,000 out of one of his investment accounts that had been earning around 6% a year and used that money to start up the business. He worked hard the first year, hiring one employee (his only salary cost for the business was the $40,000 paid to this employee) and generated total sales of $1,000,000. Total material and subcontracted labor costs for the year were $900,000.
1. Calculate accounting profit.
2. What are the opportunity costs for the manager of being in this business relative to returning to his old job?