Calculate the Effective Tax Rate for a Company That Reports

question 79

Multiple Choice

Calculate the effective tax rate for a company that reports an income tax expense of $3.0 million, profit of $7.5 million, and income before taxes of $10.5 million.

• A) 35%
• B) 40%
• C) 28.6%
• D) It cannot be computed with the above information

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Definitions:

Variable Costing

An accounting method that only includes variable production costs—direct materials, direct labor, and variable manufacturing overhead—in product cost.

Unit Product Cost

Unit product cost is the total expense incurred to produce, assemble, and prepare a single unit for sale, encompassing both direct costs and allocated overheads.

Absorption Costing

An accounting method that includes both variable and fixed manufacturing costs in the cost of a product, used for external reporting.

Unit Product Cost

The combined sum of fixed and variable expenses incurred in the creation of one unit of a product.