Rams, Inc Has Invested in a Machine with a Cost of of $37,164

question 38

Multiple Choice

Rams, Inc. has invested in a machine with a cost of $37,164 and annual cost savings of $6,000. The discount rate is 8%, and the machine's internal rate of return is 12%. Ignore income taxes. The estimated life of the machine is:

• A) 6.2 years
• B) 8 years
• C) 12 years
• D) Cannot be determined

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Definitions:

Variable Costs

Costs that change in proportion to the level of activity or volume of goods produced by a business.

Sales Decrease

A drop in the volume or amount of products or services sold by a company within a specific period.

Variable Costing

A costing method that includes only variable production costs (materials, labor, and overhead) in the cost of goods sold and treats fixed overhead costs as period expenses.

Absorption Costing

Absorption costing is an accounting method that includes all of the manufacturing costs in the cost of a product, including both variable and fixed manufacturing overhead.