Blue Manufacturing produces lathes at an inventory cost of $25,000 each and sells them for $32,000 each. For credit-approved customers, Blue leases the lathes for $8,500 per year for five years. The lathes are guaranteed to last four years and generally have a six-year life. Collection is predictable and reasonably assured. Additionally, the lessor is aware of all costs to be incurred under the lease that will not be reimbursed by the lessor.

What is the financing profit of Blue Manufacturing on a leased lathe?

The financing profit of Blue Manufacturing on a leased lathe is calculated as the total revenue from leasing minus the inventory cost of the lathe, resulting in a profit of $17,500.

To calculate the financing profit of Blue Manufacturing on a leased lathe, we need to consider the total revenue from leasing minus the inventory cost of the lathe. Blue leases the lathes for $8,500 per year for five years, which totals to $42,500 in revenue ($8,500 x 5 years). The cost of each lathe is $25,000. Therefore, the financing profit is the total lease revenue minus the inventory cost.

Financing Profit = Total Lease Revenue - Cost of the Lathe

Financing Profit = $42,500 - $25,000

Financing Profit = $17,500

Accounting profit is a company's net income, or total revenue less explicit costs. It is also known as financial profit or accounting profit. Accounting profit is a useful metric for performance evaluation and financial situation comparison with rival companies. Your entire revenue from recurring (MRR) and non-recurring revenue streams is what's referred to as total revenue, or gross revenue. Stated differently, it represents the overall revenue generated by your business from the sale of its goods and services.

This profit does not account for any additional costs such as maintenance or interest, which are mentioned to illustrate the concept of the required rental and opportunity cost of ownership in some of the references provided.