Project X Has a Cost of $100,000 and Provides the Following

question 46

Multiple Choice

Project X has a cost of $100,000 and provides the following annual earnings: year 1 $35,000; year 2 $25,000; year 3 $175,000; and year 4 $10,000. Under the payback method, in which year is the investment recouped?

• A) Year 2
• B) Year 3
• C) Year 4
• D) Not enough information is given to determine an answer.

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Definitions:

Reciprocal Services Method

An accounting method used to allocate costs among different departments within an organization that provide services to each other.

Proportional Usage

Proportional usage refers to the allocation or consumption of resources, assets, or services in a manner that is in accordance with their relative proportion or share.

Algebraic Equation

A mathematical statement that shows the equality of two expressions, usually involving variables and constants, related by operations like addition, subtraction, multiplication, and division.

Sequential Method

The sequential method is an approach to allocating service department costs to production departments in a linear fashion, based on a predetermined order or sequence.