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Company EJ plans to build a new plant to manufacture bicycles. EJ sells its bicycles in the world market for $550 per bike. It could locate the plant in Province P, which levies a 25 percent tax on business income. On the basis of the cost of materials and labor in Province P, EJ estimates that its manufacturing cost per bike would be $332. Alternatively, EJ could locate the plant in Province W, which levies a 20 percent tax on business income. On the basis of the cost of materials and labor in Province W, EJ estimates that its manufacturing cost per bike would be $350. Required: a. Calculate the after-tax profit per bike for each province. b. In which province should Company EJ build its new plant?

Company EJ plans to build a new plant to manufacture bicycles. EJ sells its bicycles in the world market for $550 per bike. It could locate the plant in Province P, which levies a 25 percent tax on business income. On the basis of the cost of materials and labor in Province P, EJ estimates that its manufacturing cost per bike would be $332. Alternatively, EJ could locate the plant in Province W, which levies a 20 percent tax on business income. On the basis of the cost of materials and labor in Province W, EJ estimates that its manufacturing cost per bike would be $350. Required: a. Calculate the after-tax profit per bike for each province. b. In which province should Company EJ build its new plant?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Ee 62.

Company EJ plans to build a new plant to manufacture bicycles. EJ sells its bicycles in the world market for $550 per bike. It could locate the plant in Province P, which levies a 25 percent tax on business income. On the basis of the cost of materials and labor in Province P, EJ estimates that its manufacturing cost per bike would be $332. Alternatively, EJ could locate the plant in Province W, which levies a 20 percent tax on business income. On the basis of the cost of materials and labor in Province W. EJ estimates that its manufacturing cost per bike would be $350. Required: a. Calculate the after-tax profit per bike for each province. b. In which province should Company EJ build its new plant? Complete this question by entering your answers in the tabs below. Required A Required B Calculate the after-tax profit per bike for each province. Note: Deductions should be indicated by a minus sign. Round your intermediate calculations and final answers to the nearest whole dollar amount. Province P Sale price per bike Manufacturing cost per bike Taxable incomo Tax After-tax profit per bike Province W Sale price per bike Manufacturing cost per bike Taxable income Tax After-tax profit per bike Amount $ S $ $ 0 0 0 0
Transcribed Image Text:Company EJ plans to build a new plant to manufacture bicycles. EJ sells its bicycles in the world market for $550 per bike. It could locate the plant in Province P, which levies a 25 percent tax on business income. On the basis of the cost of materials and labor in Province P, EJ estimates that its manufacturing cost per bike would be $332. Alternatively, EJ could locate the plant in Province W, which levies a 20 percent tax on business income. On the basis of the cost of materials and labor in Province W. EJ estimates that its manufacturing cost per bike would be $350. Required: a. Calculate the after-tax profit per bike for each province. b. In which province should Company EJ build its new plant? Complete this question by entering your answers in the tabs below. Required A Required B Calculate the after-tax profit per bike for each province. Note: Deductions should be indicated by a minus sign. Round your intermediate calculations and final answers to the nearest whole dollar amount. Province P Sale price per bike Manufacturing cost per bike Taxable incomo Tax After-tax profit per bike Province W Sale price per bike Manufacturing cost per bike Taxable income Tax After-tax profit per bike Amount $ S $ $ 0 0 0 0
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