The Following Information Applies to the Operations of MK Inc

question 141

Multiple Choice

The following information applies to the operations of MK Inc. for 2018 and 2019. Assume a tax rate of 30% for both years.
2018 information:
Sales on account in the amount of $650,000
Warranty expense and associated liability in the amount of $105,000
No other expenses incurred.

2019 information:
Sales on account in the amount of $225,000
Warranty repairs made in the amount of $68,000
No expenses incurred.

What is MK's taxable income for 2018?

• A) $545,000
• B) $650,000
• C) $755,000
• D) $582,000

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Definitions:

Direct Materials

The raw materials that are directly traceable to the manufacturing of a product and are integral to its production.

Direct Labour

The amount of effort contributed by employees who work directly on manufacturing a product or delivering a service.

Factory Overhead

Indirect costs associated with manufacturing, including costs of utilities, maintenance, and factory equipment depreciation.

Variable Expenses

Costs that change in proportion to business activity or output levels, such as materials costs and utility expenses directly linked to production.