A Lease Versus Purchase Analysis Should Compare the Cost of Leasing

question 36

Multiple Choice

A lease versus purchase analysis should compare the cost of leasing to the cost of owning, assuming which of the following?

• A) that the asset purchased is financed with short-term debt
• B) that the asset purchased is financed with long-term debt
• C) that the asset purchased is financed with debt whose maturity matches the term of the lease
• D) that the asset purchased is financed with retained earnings

---

Definitions:

Salary

A fixed regular payment, typically paid on a monthly or biweekly basis but often expressed as an annual sum, made by an employer to an employee.

Absorption Costing

A bookkeeping approach incorporating the total manufacturing expenses, which include the cost of direct materials, wages for labor directly involved in manufacturing, and all overheads, be they variable or fixed, into the product's cost.

Fixed Manufacturing Overhead

Costs associated with the production process that do not change with the level of output, such as rent, salaries, and utility expenses.

Production Volume

The total number of units of a product or service produced over a specific period.