You Are Trying to Pick the Least-Expensive Machine for Your

question 67

Multiple Choice

You are trying to pick the least-expensive machine for your company. You have two choices: machine A, which will cost $50,000 to purchase and which will have OCF of −$3,500 annually throughout the machine's expected life of three years; and machine B, which will cost $75,000 to purchase and which will have OCF of −$4,900 annually throughout that machine's four-year life. Both machines will be worthless at the end of their life. If you intend to replace whichever type of machine you choose with the same thing when its life runs out, again and again out into the foreseeable future, and if your business has a cost of capital of 14 percent, using EAC which one should you choose?

• A) Machine A
• B) Machine B
• C) All of these choices are correct.
• D) Neither machine A nor B

Comprehend the process for closing standard cost variances to Cost of Goods Sold.

Analyze the effect of production volume on fixed manufacturing overhead costs.

Understand the implications of purchasing and production decisions on material and labor variances.

Calculate various types of variances such as materials price and quantity variances.

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Definitions:

Mating Part

A component designed to connect with or fit into another component, ensuring a correct assembly or functional interaction between parts.

Material Removal

Material removal refers to the process of eliminating material from a workpiece through machining operations, such as cutting, drilling, or milling to achieve desired dimensions and features.

Material Removal

The process of eliminating excess material from a workpiece to achieve the desired shape, dimensions, or surface finish.

Micrometer

A precision measuring instrument capable of taking very fine measurements, often used in mechanical engineering and metalworking to measure thicknesses or diameters.