Colorform Company Is Considering the Purchase of the Following Computer

question 21

Multiple Choice

Colorform Company is considering the purchase of the following computer equipment, which is considered 5-year property for tax purposes: Colorform Company plans to use MACRS and keep the production equipment for seven years. (Round amounts to dollars.)
Tax savings from depreciation in Year 3 would be

• A) $54,400.
• B) $30,720.
• C) $22,856.
• D) $35,360.

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Definitions:

Machine-Hours

A metric for attributing indirect costs to products, calculated by counting the time production machinery is operated.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to products, based on estimated overhead costs and estimated activity levels, computed at the beginning of an accounting period.

Manufacturing Cost

The total expense incurred in the process of producing goods, including direct materials, direct labor, and overhead costs.

Direct Labor Cost

The expense associated with labor directly involved in the production of goods or services, excluding indirect labor costs.