A Small Foundry Agrees to Pay $250,000 Two Years from Now

question 57

Multiple Choice

A small foundry agrees to pay $250,000 two years from now to a supplier for a given amount ofcoking coal. The foundry plans to deposit a fixed amount in a bank account every three months, starting three months from now, so that at the end of two years the account holds $250,000. If the account pays 5.5% APR compounded monthly, how much must be deposited every three months?

• A) $29,777
• B) $29,770
• C) $29,740
• D) $31,250

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Definitions:

Variable Costs

Variable costs are expenses that vary directly with the level of production or sales volume, such as materials and labor.

Fixed Costs

Costs that do not vary with the level of production or sales, remaining constant regardless of business activity levels.

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to individual products or job orders.

Estimated Machine-Hours

The anticipated amount of machine time required to complete a job or process.