A product costs k100,90% of the price being production cost,the remainder being tax.if the government raises the tax by 50%,by how much in % will the factory have to reduce its production cost,to keep the price still at k100? A.5 B.85/90 C.50/9 D.85/15 E.15
old tax rate = 10%
new tax rate = 105(1.5) = 15%
so new production cost must be 85%
so it must reduce the production cost from 90% to 85%, a reduction of 5%
looks like A)
Hi Andrew,the problem is not that tough..actually it is easy..am glad to know that you are from my home country malawi.reiny i think you got the answer wrong.the company wont charge more or less unless its production cost is constant,and the only factor that maintains the consistency is the tax charged on the product..meaning to say that whatever we do with the with the tax wont do any harm to the product price if the factory adjusts its production cost accordingly,100*0.1*1.5=15%(0.1 represents the current tax,while 1.5
,while 1.5;the increasing tax).so we have the new tax at 15% and hence our new production cost is k85..then factory needs to reduce its production cost from k90 to k85 by a decreament of k5,but by a fraction of 85/9 --> 100*y=85 (y is standing for the unknown reducing percentage)..The answer is B.
Regards
Chikumbutso Matthews Frazer
I had to post two posts because some part of the text got missing as i posted
To solve this problem, we need to find out how much the factory will have to reduce its production cost in order to maintain the price at k100.
Let's start by finding the current tax amount. We know that 90% of the price is the production cost, so the remaining 10% is the tax. If the product costs k100, then 10% of k100 is (10/100) * k100 = k10.
After the government raises the tax by 50%, the new tax amount will be 1.5 times the current tax amount:
New tax amount = 1.5 * k10 = k15
Now, let's find the new production cost. Since the price of the product is still k100, the production cost will be the remaining amount after subtracting the new tax:
New production cost = k100 - k15 = k85
To calculate the reduction in production cost, we need to find the difference between the current and new production costs and express it as a percentage of the current production cost:
Reduction in production cost = (k90 - k85)/(k90) * 100% = k5/k90 * 100%
Simplifying the expression:
Reduction in production cost = (1/18) * 100% = 5.56%
Since the closest answer option is 5%, we can conclude that the correct answer is A. 5.