Use the Information Below to Answer the Following Questions Depreciation Has Been Calculated on a Straightline Basis

question 40

Multiple Choice

Use the information below to answer the following questions.
Y3 Ltd is expanding its production of binoculars. The plant is expected to cost $750,000, have a life of 5 years, and a nil residual value. It will be ready for operation on 31 December 2017. The following statement of comprehensive income figures for the new binoculars are forecast: $\begin{array}{llllll}&2018 & 2019 & 2020 & 2021 & 2022 \\&\$ \mathrm{~m} & \$ \mathrm{~m} & \$ \mathrm{~m} & \$ \mathrm{~m} & \$ \mathrm{~m}\\\text { Sales } & 1.5 & 1.3 & 1.4 & 1.2 & 1.1 \\\text { Costs (including depreciation) } & 1.0 & 1.0 & 1.0 & 1.0 & 1.0 \\\hline \text { Profit before tax } & \underline{0.5} & 0.3 & 0.4 & 0.2 & 0.1\end{array}$ Depreciation has been calculated on a straightline basis. You should assume that all cash flows occur at the end of the year in which they arise. The company's cost of capital is 10%. Ignore taxation.
-Refer to the table above. The payback period is:

• A)between years 2 and 3.
• B)between years 4 and 5.
• C)between years 3 and 4.
• D)between years 1 and 2.

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Definitions:

Direct Labor Costs

These are wages and benefits paid to employees who are directly involved in the production of goods.

Activity Cost Pools

Groupings of individual costs associated with particular activities, used in activity-based costing to allocate costs more precisely.

Cost Analysis Report

A detailed examination of cost elements and their impact on the overall expenses of a business, often used to inform financial decisions and strategies.

Time-Based Activity-Based Costing

A costing method that assigns costs based on the amount of time activities take to complete, enhancing the accuracy of product costing.