Question

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%.

Answer 1

1. Answer: a. Machine set-up

Explanation:

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

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

2.Answer: d.5%

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%