Westland College Has a Telephone System That Is in Poor

question 53

Multiple Choice

Westland College has a telephone system that is in poor condition.The system either can be overhauled or replaced with a new system.The following data have been gathered concerning these two alternatives: Westland College uses a 10% discount rate and the total cost approach to net present value analysis.The working capital required under the new system would be released for use elsewhere at the conclusion of the project.Both alternatives are expected to have a useful life of eight years. The net present value of overhauling the present system is closest to:

• A)($321,084)
• B)($532,516)
• C)($560,536)
• D)($592,516)

---

Definitions:

Variable Costing

A costing method that includes only variable production costs (direct material, direct labor, and variable manufacturing overhead) in product costs.

Net Operating Income

A company's total earnings from its operations, excluding non-operating income and expenses, interest, and taxes.

Absorption Costing

This accounting strategy entails calculating a product's cost by including all costs related to its manufacturing, comprising direct materials, direct labor, and all categories of manufacturing overhead, both variable and fixed.

Variable Costing

A costing method that includes only variable production costs (direct materials, direct labor, and variable overhead) in product costs, excluding fixed overhead.