Answered: n a cost center, the manager has…

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter26: Capital Budgeting (capbud)

Section: Chapter Questions

Problem 5R

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Question

In a cost center, the manager has responsibility and authority for making decisions that affect

a. costs

b. investments in assets

c. both costs and revenues

d. revenues

Keating Co. is considering disposing of equipment with a cost of $68,000 and accumulated depreciation of $47,600. Keating Co. can sell the equipment through a broker for $27,000 less 8% commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $46,000. Keating will incur repair, insurance, and property tax expenses estimated at $10,000 over the five-year period. At lease-end, the equipment is expected to have no residual value. The net differential income from the lease alternative is

a. $11,160

b. $7,812

c. $16,740

d. $13,392

If sales are $828,000, variable costs are 68% of sales, and operating income is $278,000, what is the contribution margin ratio?

a. 64%

b. 36%

c. 68%

d. 32%

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