A company is considering two types of equipment for its manufacturing plant. Pertinent data are as follows in the given figure below. If the minimum required rate of return is 15%, which equipment should be selected ? Use present worth cost method. Type A:First cost P250,000Annual operating cost P65,000Insurance and property taxes = 4%Payroll taxes = 5%Extimate life = 12 yearsType B:First cost $370,000Annual operating cost $30,000Annual Labor cost P38 000Insurance and property taxes = 4%Payroll taxes = 5%Extimate life = 12 years

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Type A: First cost P250,000 Annual operating cost $65,000 Insurance and property taxes = 4% Payroll taxes = 5% Extimate life - 12 years Type B: First cost P370,000 Annual operating cost P30,000 Annual Labor cost P38 000 Insurance and property taxes = 4% Payroll taxes = 5% Extimate life = 12 years

Type A: First cost P250,000 Annual operating cost $65,000 Insurance and property taxes = 4% Payroll taxes = 5% Extimate life - 12 years Type B: First cost P370,000 Annual operating cost P30,000 Annual Labor cost P38 000 Insurance and property taxes = 4% Payroll taxes = 5% Extimate life = 12 years

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Overheads

In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyze overhead expense as it helps the company in determining how much a company must charge for its products and services so that they can generate profit. Overhead expenses depend upon the nature of the business operations.

Question

A company is considering two types of equipment for its manufacturing plant. Pertinent data are as follows in the given figure below. If the minimum required rate of return is 15%, which equipment should be selected ? Use present worth cost method.

Type A:
First cost P250,000
Annual operating cost P65,000
Insurance and property taxes = 4%
Payroll taxes = 5%
Extimate life = 12 years
Type B:
First cost $370,000
Annual operating cost $30,000
Annual Labor cost P38 000
Insurance and property taxes = 4%
Payroll taxes = 5%
Extimate life = 12 years

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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