1. A company is considering the purchase of a new piece of equipment for $120,00
ID: 2477627 • Letter: 1
Question
1. A company is considering the purchase of a new piece of equipment for $120,000. Predicted annual cash inflows from this investment are $48,000 (year 1); $40,000 (year 2); $24,000 (year 3); $18,000 (year 4); and $9,000 (year 5). The payback period is:
3.22 years.
3.44 years
3.00 years.
4.44 years.
2.44 years.
2.
Austin Company uses a job order cost accounting system. The company's executives estimated that direct labor would be $8,500,000 (850,000 hours at $10/hour) and that factory overhead would be $5,400,000 for the current period. At the end of the period, the records show that there had been 310,000 hours of direct labor and $4,320,000 of actual overhead costs. Using direct labor hours as the allocation base, calculate the under- or overapplied overhead for the period. (Round Overhead rate to 2 decimal places.)
$2,351,500 underapplied.
$3,431,500 underapplied.
$6,863,000 underapplied.
$6,863,000 overapplied.
$850,000 underapplied.
Austin Company uses a job order cost accounting system. The company's executives estimated that direct labor would be $8,500,000 (850,000 hours at $10/hour) and that factory overhead would be $5,400,000 for the current period. At the end of the period, the records show that there had been 310,000 hours of direct labor and $4,320,000 of actual overhead costs. Using direct labor hours as the allocation base, calculate the under- or overapplied overhead for the period. (Round Overhead rate to 2 decimal places.)
Explanation / Answer
calculation of the payback period Year Cash Flow Cumulative 0 -120000 -120000 1 48000 -72000 2 40000 -32000 3 24000 -8000 4 18000 10000 5 9000 19000 Payback Period = 3+8000/18000 3.44 years The correct answer is B. 3.44 years The overheads has been Overapplied by 5400000-4320000 8500000-3100000 1080000 5400000 6480000
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