Exhibit 13-5 -Exhibit 13-5 Shows Data on the Various Dough-Mixing Machines That

question 89

Multiple Choice

Exhibit 13-5

-Exhibit 13-5 shows data on the various dough-mixing machines that a donut shop is considering buying. Assume that any dough-mixing machine is expected to last indefinitely, that operating expenses are negligible, and that the price of donuts is expected to remain constant in the future. If the market rate of interest is 8 percent, what size machine should the donut shop buy?

• A) none
• B) the machine with the one-quart bowl
• C) the machine with the two-quart bowl
• D) the machine with the three-quart bowl
• E) the answer can't be determined from the given data

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Definitions:

Operating Loss

A situation where a company's operating expenses exceed its revenue, indicating that it is not making a profit from its core business activities.

Variable Costs

Costs that vary directly with the level of production or sales volume.

Fixed Costs

Fixed costs include payment for rent, employee salaries, and insurance expenses, which do not vary with production or sales volume.

Operating Income

A measure of a company's profitability from its regular business operations, excluding income and expenses from non-operating activities.