Question

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

Answer 1

Accounting rate of return = 20.53%

Step-by-step 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%