Bruno's,Inc

question 50

Multiple Choice

Bruno's,Inc. is analyzing two machines to determine which one it should purchase. The company requires a 14% rate of return and uses straight-line depreciation to a zero book value. Machine A has a cost of $290,000,annual operating costs of $8,000,and a 3-year life. Machine B costs $180,000,has annual operating costs of $12,000,and has a 2-year life. Whichever machine is purchased will be replaced at the end of its useful life. Which machine should Bruno's purchase and why? (Round your answer to whole dollars.)

• A) Machine A; because it will save the company about $8,600 a year
• B) Machine A; because it will save the company about $132,912 a year
• C) Machine B; because it will save the company about $200,000 a year
• D) Machine B; because it will save the company about $11,600 a year
• E) Machine B; because its equivalent annual cost is $199,759

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Definitions:

Factory Overhead Account

An account used to accumulate all indirect costs associated with the production process, including indirect labor, materials, and other manufacturing overheads.

Actual Overhead Cost

The real expenses incurred for overhead in a given period, which may differ from budgeted or standard costs.

Overhead Applied

This term refers to the allocation of overhead costs to specific cost objects, such as products or projects, based on a predetermined rate.

Overapplied

A situation where the allocated indirect costs exceed the actual indirect costs incurred.