Answered: Sales. $225,000 Costs Materials, labor,…

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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Question

B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $360,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 144,000 units of the equipment’s product each year. The expected annual income related to this equipment follows. Compute the (1) payback period and (2) accounting rate of return for this equipment.

Sales.
$225,000
Costs
Materials, labor, and overhead (except depreciation on new equipment)
120,000
Depreciation on new equipment..
30,000
Selling and administrative expenses.
Total costs and expenses..
Pretax income...
Income taxes (30%)
22,500
172,500
52,500
15,750
Net income.
$ 36,750

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