Relevant Costs in Decision Making... Continued

Measurement of Profitability
Consider this scenario:

An owner manager uses his building for business.  The sales = $500,000, raw materials = $250,000, and operating expenses = $210,000. Should the owner close down this business?

Before we make this decision, we need to know how much  the building is worth and how much  the owner would be paid to manage a similar business.

For example, suppose the building is worth 18,000 if rented out and the owner could earn a salary of 30,000 working elsewhere, then the owner should close the business and rent out the building and work for someone else to avoid the loss of 8,000 as illustrated in the table below. Obviously, this assumes prospects for growth do not exist.