The production department is proposing the purchase of an automatic insertion machine. it has identified 3 machines and has asked the accountant to analyze them to determine the best average rate of return.
machine a machine b machine c
estimated average income $40,000 $50,000 $75,000
average investment $300,000 $250,000 $500,000
a. machine b
b. machine a
c. machine b or c
d. machine c

the correct answer is a. Machine B

Explanation:

Machine A average rate return

40000 out of 300000. It means that 300000 is 100% and $ 40000 is X. We apply a simple three rule:

40000       X                     X= 4000000/300000

300000     100%               X= 13.33%

Machine B average rate return

50000 out of 250000. It means that 250000 is 100% and $ 50000 is X. We apply a simple three rule:

50000       X                     X= 5000000/250000

250000     100%               X= 20%

Machine C average rate return

$75,000 out of $500,000. It means that $500,000 is 1005 and $75,000 is X. We apply a simple three rule

$75,000     X                       X=7500000/500000

$500,000  100%                 X= 15%

The highest average is the one onf Machine B

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