MC Qu. 90 A company is planning to purchase ... A company is planning to purchase a machine that will cost $30,600 with a six-year life and no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine? Sales $ 98,000 Costs: Manufacturing $ 50,500 Depreciation on machine 5,100 Selling and administrative expenses 38,000 (93,600) Income before taxes $ 4,400 Income tax (30%) (1,320) Net income $ 3,080

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Miguel Daugherty

Business

1 July, 13:23

MC Qu. 90 A company is planning to purchase ... A company is planning to purchase a machine that will cost $30,600 with a six-year life and no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine? Sales $ 98,000 Costs: Manufacturing $ 50,500 Depreciation on machine 5,100 Selling and administrative expenses 38,000 (93,600) Income before taxes $ 4,400 Income tax (30%) (1,320) Net income $ 3,080

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Kael Ho · Answer 1

Accounting rate of return = 20.53%

Explanation:

The accounting rate of return is the average annual income expressed as a percentage of the average investment.

The simple rate of return can be calculated using the two formula below:

Accounting rate of return

= Annual operating income/Average investment * 100

Average investment = (Initial cost + scrap value) / 2

= 30,000/2 = 15,000

Accounting rate of return = (3080/15,000) * 100 = 20.53%

Accounting rate of return = 20.53%