Question

Required information Problem 4-33 (LO 4-1) (Algo) [The following information applies to the questions displayed below.] Nitai, who is single and has no dependents, was planning on spending the weekend repairing his car. On Friday, Nitai’s employer called and offered him $525 in overtime pay if he would agree to work over the weekend. Nitai could get his car repaired over the weekend at Autofix for $420. If Nitai works over the weekend, he will have to pay the $420 to have his car repaired, but he will earn $525. Assume Nitai’s marginal tax rate is 12 percent rate. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Problem 4-33 Part-a (Algo) a-1. Strictly considering tax factors, should Nitai work or repair his car if the $420 he must pay to have his car fixed is not deductible? Work Repair a-2. Given the answer in a-1 above, by how much is Nitai better or worse off?

Answer 1

Answer:

a-1. Strictly considering tax factors, should Nitai work or repair his car if the $420 he must pay to have his car fixed is not deductible?

• Work

a-2. Given the answer in a-1 above, by how much is Nitai better or worse off?

• If Natia works during the weekend, he will have $42 more than if he repairs his car.

Explanation:

additional revenue generated by working on weekend = $525 x (1 - 12%) = $462

cost of repairing the car at Autofix = $420

net benefit of working during the weekend = additional revenue - cost of repairing the car at Autofix = $462 - $420 = $42