You own a restaurant and just negotiated a decrease in the cost of steaks by 25 cents a steak. You normally sell 300,000 steak dinners a year. Your business pays an average of 30 percent in income taxes. What is the annual tax cost of this increased efficiency?

Question

Quizplus · Accepted Answer

The decrease in cost per steak is $0.25, and with 300,000 steak dinners sold annually, the total savings is $0.25 * 300,000 = $75,000. Since the business pays 30% in income taxes, the tax cost of this increased efficiency is 30% of $75,000, which is $75,000 * 0.30 = $22,500.

You Own a Restaurant and Just Negotiated a Decrease in the Cost