A Company with $800,000 in Operating Assets Is Considering the Purchase

question 177

Multiple Choice

A company with $800,000 in operating assets is considering the purchase of a machine that costs $75,000 and which is expected to reduce operating costs by $20,000 each year.The payback period for this machine in years is closest to which of the following? (Ignore income taxes in this problem.)

• A) 0.27 years.
• B) 3.75 years.
• C) 10.70 years.
• D) 40.00 years.

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Definitions:

Debit Balance

An accounting entry that indicates the amount owed by a company, typically found on the left side of a ledger.

Work in Process Inventory

The value of partially completed goods that are still in the production process at a given point in time.

Underapplied Overhead

The situation where the allocated manufacturing overhead is less than the actual overhead incurred, leading to an adjustment need in accounting records.

Adjusting Entry

An accounting journal entry made to amend the preliminary financial records before preparing financial statements.