Assume that the cost of certain equipment your business is considering purchasing is $100,000. You plan to depreciate the equipment over five years, at which point the salvage value is expected to be $8,000. Anticipated after-tax profits (losses) are as follows:
Compute the accounting return on investment. (Show the formula and your computations.)
Definitions:
Standard Rate
A predetermined cost or price used as a benchmark for evaluating the efficiency or effectiveness of operations.
Spending Variance
The difference between the actual amount spent and the budgeted amount for a specific period, indicating under or overspending.
Variable Overhead
Costs that change with the level of production or service activity.
Activity Level
A metric indicating the volume or intensity of operations in a company, affecting its costs and resources.
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