A Company Is Considering Two Different Purchases from a Vendor

question 34

Multiple Choice

A company is considering two different purchases from a vendor, for a high-speed photocopier. The regular model costs $4,500 and the deluxe model costs $6,100. The company has projected cash savings of $800 for the first year, and then $850 annually thereafter for the regular model, but the vendor is claiming that the deluxe model is $400 cheaper per year to operate than the regular model. What are the payback periods for the Regular and Deluxe models, respectively?

• A) 4.88 years; 5.63 years
• B) 5.08 years; 5.29 years
• C) 5.29 years; 4.88 years
• D) 5.29 years; 5.63 years
• E) 5.35 years; 4.92 years

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Definitions:

Cost Per Unit

This refers to the total expense incurred to produce, store, and sell one unit of a product or service.

Materials

The raw items or components used in the production of goods.

Equivalent Unit

A measure used in cost accounting to express the amount of work done by incomplete units in terms of fully completed units.

Weighted-Average Method

An inventory costing method where the cost of goods sold and ending inventory values are based upon the average cost of all items available for sale during the period.