International Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has
Question:
International Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $85,000, with a $5,000 residual value and a 10 year life. The equipment will replace one employee who has an average wage of $23,000 per year. In addition, the equipment will have operating and energy costs of $6,000 per year.
Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment.
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The effect of the savings in wages expense is an increa...View the full answer
Accounting
ISBN: 978-0324401844
22nd Edition
Authors: Carl S. Warren, James M. Reeve, Jonathan E. Duchac
Related Video
In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
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