GoFlo Is a Small Growing Firm That Is Considering the Purchase

question 12

Multiple Choice

GoFlo is a small growing firm that is considering the purchase of another truck to serve GoFlo's expanding customer base. The new truck will cost $21,000 and should generate annual net cash flows of $6,000 over the truck's 5-year life. What is the payback period for this project?

• A) 3 years
• B) 4.2 years
• C) 3.5 years
• D) 3.3 years

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Definitions:

Unit Product Cost

The total cost associated with producing and delivering a single unit of product, including direct labor, materials, and overhead.

Absorption Costing

A financial approach that encompasses all production expenses, such as direct materials, direct labor, and all manufacturing overhead costs, both variable and fixed, into the product's price.

Direct Labor Cost

Direct labor cost is the total expense that a company incurs for labor directly involved in the manufacturing of a product or delivery of a service.

Reconciliation

The process of ensuring two sets of records or accounts are in agreement, often used in financial accounting to match bank statements with internal records.