You Are Considering Adding a Microbrewery on to One of Your

question 26

Multiple Choice

You are considering adding a microbrewery on to one of your firm's existing restaurants.This will entail an investment of $40,000 in new equipment.This equipment will be depreciated straight line over five years.If your firm's marginal corporate tax rate is 35%,then what is the value of the microbrewery's depreciation tax shield in the first year of operation?

• A)$2800
• B)$14,000
• C)$5200
• D)$26,000

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Definitions:

Variances

The differences between planned or expected results and actual outcomes in budgeting and accounting.

Material Price Variances

The difference between the actual cost of materials and the expected or budgeted cost of materials in production processes.

Materials Account

An account used to track the costs of raw materials that are either in stock or being used in production processes.

Standard Cost

A predetermined cost of manufacturing a product or providing a service, used for budgeting and performance evaluation.