Monster Company is required to pay taxes of 25% on income up to $20,000 and 30% on any income in excess of $20,000.The company has pretax income of $80,000.What is the average tax rate for Monster Company?

Question

Quizplus · Accepted Answer

To find the average tax rate, we need to divide the total amount of tax paid by the total income. 
For income up to $20,000, the tax paid is 25% of $20,000 = $5,000.
For income above $20,000, the tax paid is 30% of ($80,000 - $20,000) = $18,000. 
So the total tax paid is $5,000 + $18,000 = $23,000.

The total income is $80,000, so the average tax rate is ($23,000 / $80,000) x 100% = 28.75%. 
Therefore, the answer is C.

Monster Company Is Required to Pay Taxes of 25% on Income