The Following Information Was Presented by Shower Wonder Enterprises for an Asset

question 45

Multiple Choice

The following information was presented by Shower Wonder Enterprises for an asset purchased at the beginning of the previous year.
$$\begin{array} { l c } \text { Original cost of the asset } & \$ 20,000 \\\text { Useful life of the asset } & 10 \text { years } \\\text { Annual operating profit, including depreciation } & \$ 4,000 \\\text { Salvage value } &\$ - 0 -\end{array}$$ .
What is the return on investment (ROI) assuming Shower Wonder uses (a) the straight-line method for depreciation and (b) average net book values to compute ROI?

• A) 21.1%.
• B) 20.0%.
• C) 22.2%.
• D) 11.76%.

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Definitions:

Direct Labor

The labor costs directly tied to the production of goods or services, which can be directly attributed to specific units of production.

Direct Materials

Raw materials directly traceable to the production of goods, considered a variable cost.

Overhead Cost

Indirect costs related to the general operation of a company, such as rent, utilities, and administrative salaries, not directly tied to the production of goods or services.

Incremental Cost

The additional cost associated with producing one extra unit of production or conducting an activity.