The Lasorda Company Provided the Following Information The Operating Income Before Depreciation During Each of the Three

question 112

Essay

The Lasorda Company provided the following information: $\begin{array} { l } \text { Cost of machine}&\$300,000 \\ \text {Life in years }&\text {3 YEARS } \\ \text {Residual value }& \text {zero }\\ \text { Depreciation method}& \text { stright-line}\\\end{array}$
The operating income before depreciation during each of the three years the machine was in use was $150,000.
a. Compute the rate of return on the average investment for each of the three years using the net book value.
b. Compute the rate of return on the average investment for each of the three years using the gross book value.

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Definitions:

Activity-based Costing

A costing methodology that assigns production costs to products or services based on the activities and resources that go into their creation.

Traditional Costing System

A traditional costing system allocates indirect costs to products based on a single measure of activity, such as machine hours or direct labor hours, often not capturing the true costs of complex production processes.

Batch-level Costs

Costs associated with a specific batch of products, including setup costs and quality testing, that are not directly related to the manufacturing of individual items within the batch.

Activity-based Costing

An accounting method that assigns costs to products or services based on the activities and resources that go into their production.