A Company Owns Equipment That Is Used to Manufacture Important

question 37

Multiple Choice

A company owns equipment that is used to manufacture important parts for its production process. Because the equipment is repeatedly breaking down, the company plans to sell the equipment for $10,000 and select one of the following alternatives: (1) acquire new equipment for $80,000 and continue to manufacture the part at the same variable cost, or (2) purchase the parts from an outside company at $4 per part. In the short run, the company should analyze the two decision alternatives by comparing the variable cost of manufacturing the parts:

• A) Plus $80,000, to the cost of buying the parts.
• B) To the cost of buying the parts less $10,000.
• C) Less $10,000, to the cost of buying the parts.
• D) To the cost of buying the parts.
• E) Plus $70,000, to the cost of buying the parts

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Definitions:

Progressive

A term often used to describe a tax system in which the tax rate increases as the taxable amount or income increases.

Tax System

The comprehensive set of laws and regulations governing the collection of taxes by the government from individuals and businesses.

Average Tax Rate

Total taxes paid divided by total income

Taxable Income

The amount of income used to determine how much tax an individual or a company owes to the government in a given tax year.