A Company Is Planning to Purchase a Machine That Will

question 1

True/False

A company is planning to purchase a machine that will cost $24,000, have a six-year life, and have no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. Total income over the life of the machine is estimated to be $12,000. The machine will generate cash flows per year of $6,000. The accounting rate of return for the machine is 16.7%.

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Definitions:

FIFO Method

The FIFO (First-In, First-Out) method is an inventory valuation strategy where the costs of the oldest inventory items are assigned to the cost of goods sold first.

Inventory Item

An item stored within a company's inventory that is ready or will be ready for sale, including raw materials, work-in-progress, and finished goods.

Gross Profit Method

A technique used in accounting to estimate the amount of ending inventory and cost of goods sold by applying a gross profit margin to sales.

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated as the beginning inventory plus purchases minus cost of goods sold.