You Have Purchased a Machine Costing $30,000

question 1

Essay

You have purchased a machine costing $30,000. The machine will be used for two years, at the end of which
time its salvage value is expected to be $18,000. The machine will be used 6,000 hours during the first year and
8,000 hours during the second year. The expected annual net savings will be $35,000 during the first year and
$42,000 during the second year. If your interest rate is 12%, what would be the equivalent net savings per
machine hour?

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Definitions:

Merchandise Inventory

The total cost of all goods that are available for sale during a certain period, including purchases and adjustments for returns or damages.

Inventory On Hand

Refers to the total amount of items or products available in stock by a business at any given time.

Debit Memo

A document issued by a buyer to a seller indicating a reduction of the amount due to the seller, often due to returned goods or discrepancy in billing.

Price Allowance

A reduction in the selling price, often used as a promotional strategy or to compensate for minor defects.