Question

# Which of the options is considered a batch-level activity? a. Machine set-up b. Warehouse costs c....

Which of the options is considered a batch-level activity?

 a. Machine set-up b. Warehouse costs c. Direct labor d. Preparing the annual budget

Williamson Limited is expecting to invest in equipment that cost \$120,000. The equipment has an 8-year life and no salvage value. Williamson uses straight-line depreciation. The equipment has a payback period of 5 years. The accounting rate of return is closest to

 a. 7.8%. b. 6.25%. c. 7.5%. d. 5%.

Explanation:

Setting machine to produce one product to another is 'Batch-level activity'.

Thus, Machine set-up is batch-level activity.

Explanation:

Average annual profit = Cost of equipment ÷ Payback period = \$120,000 ÷ 5 years = \$24,000

Average annual investment [ =(Book value at Year 1 + Book value at the end of useful life)/2 = (\$120,000 + \$0)/2 = \$60,000

Accounting rate = (Average annual profit ÷ Average annual investment) x 100

= (\$24,000 ÷ \$60,000) x 100

= 5%

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