Boccardi Inc., has invested in new pasta manufacturing equipment at a cost of $48,000. The equipment has an estimated useful life of eight years. Estimated annual sales and operating expenses related to the pasta equipment follow: $$\begin{array} { l c }
\text { Annual sales } & \$ 88,000 \
\text { Labor costs } & ( 72,000 ) \
\text { Depreciation of equipment } & \underline { ( 6,000 ) } \
\text { Operating income } & \$ 10,000 \
\text { Income taxes } & \underline { ( 4,000 ) } \
\text { Net income } &\underline{\underline{ \$ 6,000}}
\end{array}$$ The estimated accounting rate of return is:

Question

Boccardi Inc., has invested in new pasta manufacturing equipment at a cost of $48,000. The equipment has an estimated useful life of eight years. Estimated annual sales and operating expenses related to the pasta equipment follow: $$\begin{array} { l c } 
\text { Annual sales } & \$ 88,000 \
\text { Labor costs } & ( 72,000 ) \
\text { Depreciation of equipment } & \underline { ( 6,000 ) } \
\text { Operating income } & \$ 10,000 \
\text { Income taxes } & \underline { ( 4,000 ) } \
\text { Net income } &\underline{\underline{ \$ 6,000}}
\end{array}$$ The estimated accounting rate of return is:

Quizplus · Accepted Answer

The accounting rate of return is calculated by dividing the annual net income by the initial investment. In this case, the annual net income is $6,000 and the initial investment is $48,000. Therefore, the accounting rate of return is $6,000/$48,000 = 12.5%.

Boccardi Inc The Estimated Accounting Rate of Return Is: A) 12

Boccardi Inc The Estimated Accounting Rate of Return Is:
A) 12