Two Machines, a and B, Which Perform the Same Functions

question 62

Multiple Choice

Two machines, A and B, which perform the same functions, have the following costs and lives.

Which machine would you choose? The two machines are mutually exclusive and the cost of capital is 15 percent.

• A)Machine A, because the EAC is $1,789.89
• B)Machine B, because the EAC is $1,922.88
• C)Machine A, because it has lower PV costs
• D)Machine B, because it has longer life

---

Definitions:

Accrual Basis

An accounting method where revenues and expenses are recorded when they are earned or incurred, regardless of when the cash transaction occurs.

Cash Basis

An accounting method where revenues and expenses are recorded only when cash is received or paid out, regardless of when the transactions occurred.

Cost Of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including material, labor, and manufacturing overhead expenses.

Accumulated Depreciation

The total amount of a tangible asset's cost that has been allocated as depreciation expense since the asset was put into use.