Bev Is Considering Purchasing a New Button-Holer for Her Business

question 14

Multiple Choice

Bev is considering purchasing a new button-holer for her business. She estimates that the machine will cost $90,000 and will be paid for in cash. Her cash savings from the first 4 years of operation of the machine will be $20,000 in year 1, $30,000 in year 2, $35,000 in year 3 and $35,000 in year 4. The payback period for the machine is:

• A) 3.86 years.
• B) 3.14 years.
• C) 2. 66 years.
• D) 4 years.

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Definitions:

Support Department Costs

The costs associated with functions that assist the direct production or service departments of an organization, such as maintenance and administration.

Overhead Rates

The ratio used to allocate indirect costs to products or services, typically based on a measure such as labor hours or machine hours.

Personnel Costs

Expenses related to the compensation and benefits of employees, including wages, salaries, bonuses, and fringe benefits.

Volume-based Cost Driver

A factor that causes the cost of an activity or resource to increase, directly related to the volume of production or service delivery.