At the Beginning of the Year, Lombardi Company Initiated an Environmental

question 73

Multiple Choice

At the beginning of the year, Lombardi Company initiated an environmental cost reduction program. To help assess the impact of the environmental cost reduction improvement program, the following data was collected for the current and preceding year: $\begin{array}{lrr}&\text { Freceding Year }&\text { Current Year }\\\text { Operating costs } & \$ 4,500,000 & \$ 4,500,000 \\\text { Designing products } & 3,000 & 4,500 \\\text { Auditing environmental activities } & 7,500 & 12,000 \\\text { Recycling scrap } & 60,000 & 45,000 \\\text { Disposing of toxic waste } & 120,000 & 75,000 \\\text { Testing for contamination } & 15,000 & 30,000 \\\text { Cleaning up oil spills } & 105,000 & 82,500\end{array}$ For the current year, internal failure costs are what percentage of operating costs?

• A)2.67%
• B)2.76%
• C)1.38%
• D)0.93%

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Definitions:

Interest Rate

The percentage charged on a loan or paid on deposits over a specific period, usually expressed as an annual percentage of the principal.

Amortization Assumption

The accounting practice of gradually writing off the initial cost of an intangible asset over its useful life.

Interest Expense

The cost incurred by an entity for borrowed funds; interest payments made on any form of debt over a given period.

Effective Interest Method

An accounting practice used to allocate loan discounts or premiums over the life of the loan, reflecting the financial interest rate more accurately.