(Ignore Income Taxes in This Problem

question 15

Multiple Choice

(Ignore income taxes in this problem.) The following information is available on a new piece of equipment: The life of the equipment is approximately:

• A)6 years.
• B)4.3 years.
• C)8 years.
• D)It is impossible to determine from the data given.

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Definitions:

Margin of Safety

The difference between actual sales and sales at the breakeven point, indicating how much sales can decline before a loss occurs.

Variable Expenses

Costs that change in proportion to the activity or volume of a business operation.

Contribution Margin

The difference between sales revenue and variable costs; used to cover fixed costs and generate profit.

Break-Even Point

The sales level at which the company does not make a profit or incur a loss, denoting a balance between revenue and costs.