Exeter Corporation Purchased a Piece of Equipment with a Price

question 193

Multiple Choice

Exeter Corporation purchased a piece of equipment with a price of $80,000 on March 1, 2018.The amounts below are related to the equipment purchase.Match the items below and explain why each revenue expenditure is not capitalized.
-$3,000 freight costs were paid to ship the equipment from the manufacturer.

• A)This item should be included as part of the cost of the equipment.
• B)This item should be considered a revenue expenditure.

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Definitions:

Fixed Expenses

Costs that do not fluctuate with changes in production level or sales volume, such as leases and insurance premiums.

Contribution Margin

The amount by which the sale of a product exceeds its variable costs, contributing towards covering fixed costs and generating profit.

Return On Investment (ROI)

A financial metric used to evaluate the efficiency or profitability of an investment, calculated by dividing the benefit (return) of an investment by the cost of the investment.

Net Operating Income

The total profit of a business after operating expenses are deducted but before taxes and interest are calculated.