Soda Manufacturing Company Provides Vending Machines for Soft-Drink Manufacturers

question 120

Multiple Choice

Soda Manufacturing Company provides vending machines for soft-drink manufacturers. The company has been investigating a new piece of machinery for its production department. The old equipment has a remaining life of five years and the new equipment will cost $99,825 with a five-year life. The expected additional cash inflows are $25,000 per year. What is the internal rate of return?

• A) 8%
• B) 12%
• C) 6%
• D) 4%

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Definitions:

Variable Overhead Rate Variance

The difference between the actual variable overhead costs incurred and the standard cost allocated, indicating inefficiencies or cost control issues.

Favorable

A term used in accounting to describe a situation where actual costs are less than the budgeted or standard costs.

Unfavorable

A term used in variance analysis to describe a variance that leads to a decrease in profit compared to budgeted or standard costs.

Fixed Manufacturing Overhead

The portion of total manufacturing overhead costs that does not vary with the level of production or output.