Question

Industries bought land and built its plant years ago. The depreciation on the building is calculated using the straight-line method, with a life of [years] and a salvage value of [salvage value]. Land is not depreciated. The depreciation for the equipment, all of which was purchased at the same time the plant was constructed, is calculated using declining balance at [percent]. Currently, Industries has two outstanding loans: one for [loan amount] due December 31, [year], and another one for [loan amount] which the next payment is due in four years. During April [year], there was a flood in the building because a nearby river overflowed its banks after unusually heavy rains. Pumping out the water and cleaning up the basement and the first floor of the building took a week. Manufacturing was suspended during this period and some inventory was damaged. Due to inadequate insurance, this unusual and unexpected event cost the company [cost], net.

Answer 1

The subject of this question is the cost of building a factory and factors of production, focusing on depreciation methods and the long run.

Step-by-step explanation:

In this scenario, the subject is related to the cost of building a factory and factors of production. Industries bought land and built a plant years ago, and they calculate depreciation using the straight-line method for the building and declining balance for equipment.

The long run is the period when all costs are variable and a firm can build new factories and purchase new machinery. The cost of each factor of production is crucial for profitability and decision-making.