Hendricks Corporation Sells Widgets in Two States

question 21

Multiple Choice

Hendricks Corporation sells widgets in two states. State A levies a 9% effective tax rate, and State B levies a 3% rate. A and B have adopted sales-factor-only apportionment formulas. To reduce overall multistate income tax liabilities, Hendricks should:

• A) Move its home office from B to A.
• B) Remove all stored inventory from A.
• C) Establish a personal training center in A.
• D) Convert to employee status the independent contractors that it uses to sell widgets in A.

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Definitions:

Average Cost

The total cost of production divided by the number of units produced, providing a measure of the cost per unit of output.

Total Costs

The complete sum of all expenses, direct and indirect, incurred in the production of goods or services.

Average-Fixed-Cost Curve

A graph that shows the average fixed costs of production at different levels of output.

Fixed Cost

Costs that do not vary with the level of output or sales, such as rent, salaries, and insurance, remaining constant regardless of production volume.