Calipers and More Is Weighing a Lease Versus a Purchase

question 143

Multiple Choice

Calipers and More is weighing a lease versus a purchase of some new machinery. The purchase price is $231,800. The equipment has a 4-year life after which time it is expected to have a resale value of $68,000. The equipment belongs in a 30 percent CCA class and the firm can borrow money at 9.5 percent. The equipment can be leased for $62,900 a year for 4 years. Calipers does not expect to owe any taxes for the next 4 years because of accumulated net operating losses. What is the net advantage to leasing?

• A) -$36,209
• B) -$18,104
• C) $18,104
• D) $36,209
• E) $77,537

Understand the concept of value-based pricing and its application in establishing selling prices.

Grasp the principles of target costing and its role in setting selling prices.

Identify the impact of production outsourcing on product cost reduction.

Understand the elasticity of demand and its influence on pricing decisions.

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Definitions:

Manufacturing Overhead

All indirect costs associated with the production of goods, such as utilities, maintenance, and salaries for indirect labor.

Direct Labor-Hours

The total hours of labor directly involved in manufacturing a product.

Machine-Hours

A measure of the amount of time a machine is operated, used in calculating manufacturing overhead rates.

Predetermined Overhead Rate

A rate used to allocate estimated overhead costs to products or job orders, based on a pre-established criterion.