Describe how total variable costs and unit variable costs behave with changes in the level of activity.
Expert Solution & Answer
To determine
Describe the behavior of the total variable costs and unit variable costs with changes in the level of activity.
Explanation of Solution
Cost Behavior: It refers to the method in which a cost changes with respect to the changes in its related activities. This method helps the management in estimating costs for decision making and predict future profits.
Describe the behavior of the total variable costs and unit variable costs with changes in the level of activity as follows:
The total variable costs changes proportionately with respect to the changes in the level of activity. However, the unit variable costs remains constant irrespective to the changes in the level of activity.
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Acorn Construction (calendar-year-end C corporation) has had rapid expansion during the last half of the current year due to the housing market's recovery. The company has record income and would like to maximize its cost recovery deduction for the current year. (Use MACRS Table 1, Table 2, Table 3, Table 4, and Table 5.)
Note: Round your answer to the nearest whole dollar amount.
Acorn provided you with the following information:
Asset
Placed in Service
Basis
New equipment and tools
August 20
$ 3,800,000
Used light-duty trucks
October 17
2,000,000
Used machinery
November 6
1,525,000
Total
$ 7,325,000
The used assets had been contributed to the business by its owner in a tax-deferred transaction two years ago.
a. What is Acorn's maximum cost recovery deduction in the current year?
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