Machinery Having a Four-Year Useful Life and a Residual Value

question 122

True/False

Machinery having a four-year useful life and a residual value of $5,000 was acquired for $65,000 cash on June 28.Using the nearest whole month method,the company would recognize $11,250 for depreciation expense at the end of the first year,December 31.

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Definitions:

Variable Costs

Expenses that vary in direct relation to the amount of output or sales.

Fixed Costs

Expenses that do not change with the level of output or sales, such as rent, salaries, and insurance, remaining constant regardless of business activity levels.

Margin of Safety

The difference between actual or anticipated sales and the sales level at the break-even point, measured to assess the risk of not covering fixed costs.

Contribution Format

A method of income statement presentation where costs are separated into variable and fixed categories, emphasizing the contribution margin.