Global Industries GI Is Planning to Use Some Existing Equipment

question 12

Multiple Choice

Global Industries GI is planning to use some existing equipment from its own facilities in a foreign project.The used equipment has a book value of $2 million but a market value of $6 million.If GI's marginal tax rate is 34%,what is its opportunity cost of using the used equipment in the foreign project?

• A)$2 million
• B)$3.25 million
• C)$6 million
• D)$4.64 million

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Definitions:

Direct Labor

Direct Labor involves the wages paid to workers who are directly involved in the production of goods or the delivery of services, being a variable cost tied to production levels.

Overhead Cost Variance

The difference between the estimated overhead costs and the actual overhead costs incurred during a period.

Overhead Costs

Expenses not directly tied to the production of goods or services, such as rent, utilities, and office supplies.

Total Controllable Cost Variance

The difference between the actual controllable costs incurred and the budgeted controllable costs over a specific period.