The Rate of Return for an Asset That Costs $200,000

question 43

Multiple Choice

The rate of return for an asset that costs $200,000 and promises to pay $40,000 net per year forever to its owner is ________ percent.

• A) 10
• B) 15
• C) 20
• D) 25
• E) 100

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Definitions:

Product Costing

Product costing involves determining all expenses related to the creation of a product, including materials, labor, and overhead, to establish its total cost.

Absorption Costing

In this accounting method, total costs of manufacturing, from direct materials and labor to both fixed and variable overheads, are completely absorbed into the product’s final cost.

Variable Costing

Variable costing is a cost accounting method that includes only variable production costs—direct materials, direct labor, and variable manufacturing overhead—in product cost calculations, excluding fixed overhead costs.

Production Costs

Expenses directly related to the creation of goods and services, including materials, labor, and overhead costs.