Answer:
b. changes in the same direction and in direct proportion to changes in operation activity.
Explanation:
Variable costs are expenses that vary with changes in production level. A variable cost is attached to the production of a particular product or service. An example of variable cost is the raw material expense. As the production level rises, more raw materials will be needed for production.
The relationship between variable costs and output level is direct and proportional. An increase in output requires more materials and other consumables. As variable costs are associated with the production process, an increase or decrease in production level results in a similar or increase or decrease in variable costs.
Consider a used-car market with asymmetric information. The owners of used cars know what their vehicles are worth but have no way of credibly demonstrating those values to potential buyers. Thus, potential buyers must always worry that the used car they are being offered may be a low-quality "lemon."a. Suppose that there are equal numbers of good and bad used cars in the market and that good used cars are worth $13,000 while bad used cars are worth $5,000. What is the average value of a used car?b. By how much does the average value exceed the value of a bad used car? By how much does the value of a good used car exceed the average value?c. Would a potential seller of a good used car be willing to accept the average value as payment for her vehicle?d. If a buyer negotiates with a seller to purchase the seller’s used car for a price equal to the average value, is the car more likely to be good or bad?e. Will the used car market come to feature mostly—if not exclusively—lemons? How much will used cars end up costing if all the good cars are withdrawn?
Answer:
A) the average value of a used car = ($13,000 + $5,000) / 2 = $18,000 / 2 = $9,000
B) the average value is $4,000 higher than the value of a bad used car. A good used car exceeds the average value by $4,000.
C) No, because he/she knows that his good used car is worth much more.
D) If the seller accepts the average value, it is more likely that his car is a bad car.
E) The majority of used cars should be bad or lemon, since good used cars will be sold quickly. If all good used cars were removed, then the price of used cars would drop to $5,000 (the value of a lemon car).
A firm's natural resource exploitation site will require an expenditure of $5 million to reclaim the site for environmental purposes. That expenditure is expected to be made five years from now. The present value today of that amount is $3.5 million. Because of this obligation, by what amount will (1) total depletion on the site increase and (2) how much accretion expense will be recognized, over the five years (in millions)?
Answer:
(1) $3.5 million
(2) $1.5 million
Explanation:
The account of natural resources is compounded by the duty to sell the properties, which is the present value of the $5 million to be paid later, or $3.5 million.
Total depletion over most of the life of the project thus increases by this number. Accretion expense is the growth in the obligation over time.
The $3.5 million amount will increase to $5 million in five years, and at that time that amount's expended.
Suppose that the demand for digital cameras is elastic, and the supply of digital cameras is inelastic. A tax of $20 per camera levied on digital cameras will decrease the effective price received by sellers of digital cameras by________.
Answer:
It depends on the relative elasticties (ie. how elastic demand is/inelastic supply is). The price received by suppliers would decrease by $20 if demand is perfectly elastic: the burden of the tax falls primarily on the supplier since their supply is inelastic.
Therefore:
The tax will raise the equilibrium price from the old level (P*) to the new price paid by consumers (Pc). The price that producers will receive (Pp) is the amount consumers pay minus the amount of the tax, or Pc - t. (depending on the relative elasticities)
Explanation:
Key points :
Tax incidence is the manner in which the tax burden is divided between buyers and sellers. The tax incidence depends on the relative price elasticity of supply and demand. When supply is more elastic than demand, buyers bear most of the tax burden. When demand is more elastic than supply, producers bear most of the cost of the tax. Tax revenue (to the government) is larger the more inelastic the demand and supply are.Depending on the circumstance (relative elasticities of demand and supply), the burden of tax can fall more on consumers or on producers.
Typically, the incidence, or burden, of a tax falls both on the consumers and producers of the taxed good. But if we want to predict which group will bear most of the burden, all we need to do is examine the elasticity of demand and supply.
The tax burden falls on the more inelastic side of the market. In this case since supply is more inelastic than demand, the tax burden will fall more on them.
When a tax is introduced in a market with an inelastic supply, the sellers have no choice but to accept lower prices.
Further explanation:
By introducing a tax, the government essentially creates a wedge between the price paid by consumers, Pc and the price received by producers, Pp. In other words, of the total price paid by consumers, part is retained by the sellers and part is paid to the government in the form of a tax. he distance between Pc an Pp is the tax rate. The new market price is Pc , but sellers receive only Pp per unit sold since they pay Pc - Pp to the government.
Summary:
The tax incidence depends on the relative price elasticity of supply and demand. When supply is more elastic than demand, buyers bear most of the tax burden. When demand is more elastic than supply, producers bear most of the cost of the tax. Tax revenue is larger the more inelastic the demand and supply are.
Sellers (suppliers) have to carry a higher tax burden if supply is less elastic than demand. In other words, the side that has a relatively more inelastic curve (i.e., reacts less to price changes) has to carry a larger share of the tax burden, regardless of who the tax is initially levied on.
In a market for digital cameras where demand is elastic and supply is inelastic, the effective price received by sellers will decrease significantly due to a $20 tax, potentially by the full amount of the tax. This occurs because sellers, who cannot easily adjust their quantity supplied, bear a larger share of the tax burden.
The question explores the implications of a $20 tax on digital cameras when demand is elastic and supply is inelastic. In such a market structure, when a tax is levied, the burden tends to fall more heavily on the side of the market that is less responsive to price changes. Given that the supply of digital cameras is inelastic (suppliers cannot easily adjust their quantity supplied in response to price changes), and demand is elastic (consumers are sensitive to price changes and can easily switch to substitutes), the effective price received by sellers of digital cameras will decrease significantly.
Considering the principles of tax incidence in markets with these characteristics, sellers bear a larger share of the tax burden when their ability to adjust is limited. Therefore, the $20 tax will lead to a decrease in the effective price received by sellers by nearly the full amount of the tax, if not the entire $20, depending on the exact elasticity measures of demand and supply.
Lekeisha's income exceeds her expenditures. Lekeisha is a
a. saver who demands money from the financial system.
b. saver who supplies money to the financial system.
c. borrower who demands money from the financial system.
d. borrower who demands money from the financial system.
Answer:
b. saver who supplies money to the financial system.
Explanation:
Lekeisha's income exceeds her expenditures, this means that after using money to satisfy all her immediate needs, she still has some money left. Lekeisha saves this money, for example, by depositing in a savings account. This funds then enter the financial system because the bank uses part of it (or all of it) to make loans.
In its 1996 income statement, Kilm Co. reported cost of goods sold of $450,000. Changes occurred in several balance sheet accounts as follows:Inventory $160,000 decreaseAccounts payable-suppliers 40,000 decreaseWhat amount should Kilm report as cash paid to suppliers in its 1996 cash flow statement, prepared under the direct method?a. $250,000b. $330,000c. $570,000d. $650,000
Answer:
b. $330,000
Explanation:
Provided that
Reported cost of good sold = $450,000
Decrease in inventory = $160,000
Decrease in account payable = $40,000
So, The computation of the cash paid to supplier is shown below:
= Cost of goods sold + decrease in account payable - decrease in inventory
= $450,000 + $40,000 - $160,000
= $330,000
The decrease in supplies is added while the decrease in inventory is deducted to the cost of goods sold.
Mann Corporation has been investing $18,000 for the last four years in an investment scheme that will mature at the end of the current year. It will be receiving $80,000 at the time of the maturity. $80,000 received at maturity is an example of _____.
a. annuity due
b. ordinary annuity
c. lump-sum amount
d. uneven cash flow
Answer:
c. lump-sum amount
Explanation:
Lump-sum amount -
It refers to the one complete amount of money , is referred to as lump - sum amount .
A lump -sum investment ,. refers to the amount of money invested at one time .
Similarly ,
The returns can be lump - sum , where the person receives the complete amount at one go after maturation , is referred to as lump - sum amount .
Hence , from the given scenario of the question ,
The correct option is c. lump - sum amount .
On January 2, Boulder Co. assigned its patent to Castle Co. for royalties of 10% of patent-related sales. The assignment is for the remaining 4 years of the patent’s life. Castle guaranteed Boulder a minimum royalty of $100,000 over the life of the patent and paid Boulder $50,000 against future royalties during the year. Patent-related sales for the year were $300,000. In its income statement for the year, what amount should Boulder report as royalty revenue?
Answer:
$30,000
Explanation:
The computation of the royalty revenue reported is shown below:
= Patent-related sales for the year × given percentage
= $300,000 × 10%
= $30,000
The revenue is recognized when it is earned or realized so only $30,000 is to be reported as the royalty revenue
The remaining amount i.e $20,000 would be treated as an unearned royalty revenue
Producer surplus is the area A. under the demand curve and above the price. B. between the supply and demand curves. C. below the price and above the supply curve. D. under the supply curve.
Answer:
C. below the price and above the supply curve
Explanation:
The Producer surplus is the difference between the price received for a product and the minimum price the seller is willing to accept for the same product. This area on the graph is below the price line and above the supply curve.
In his spare time, Fred likes to restore old furniture and sell it to his friends. He is a lawyer by trade. During 2017, he sells $500 worth of furniture and has $21,000 worth of expenses. Which one of the following is true?
a.Fred may deduct all $21,000 of his expenses because Fred is engaged in a trade or business.
b.Fred may deduct all $21,000 of his expenses because Fred is engaged in a hobby.
c.Fred cannot deduct any of the expenses because he is engaged in a hobby.
d.Fred's deductions are limited to the income from selling furniture because he is engaged in a hobby.
e.None of these choices are correct.
Answer:
d.Fred's deductions are limited to the income from selling furniture because he is engaged in a hobby.
Explanation:
Fred will only deduct the $500 sales from the furniture hobby the other expenses aren't deductible as they aren't backed for occasional sales from their hobby.
It is important to notice there is a another limit to how much a person can deduct from this type of activities which is 2% of the gross income
Therefore if a person makes 100,000 gross income per year
it can deduct a maximum expense of 2%.
Fred can only deduct expenses up to the amount of income generated from his furniture restoration hobby, which is $500, not the full $21,000 in expenses he incurred.
Fred is engaged in what appears to be a hobby, as it is not his primary trade and it does not appear to be pursued with a profit motive, given the large discrepancy between the expenses and income. Therefore, the correct answer is d. Fred's deductions are limited to the income from selling furniture because he is engaged in a hobby. The IRS only allows hobbyists to deduct expenses up to the amount of income generated by the hobby. This means Fred can only deduct $500 of his $21,000 in expenses against the $500 income from selling the furniture, and cannot use the remaining expenses to offset other income.
. Accounts receivable that cannot be collected. (p. 412) 2. Crediting the estimated value of uncollectible accounts to a contra account. (p. 412) 3. The difference between an asset's account balance and its related contra account balance. (p. 412) 4. The difference between the balance of Accounts Receivable and its contra account, Allowance for Uncollectible Accounts. (p. 412) 5. The amount of accounts receivable a business expects to collect. (p. 412) 6. A method used to estimate uncollectible accounts receivable that assumes a percent of credit sales will become uncollectible. (p. 413) 7. A method used to estimate uncollectible accounts receivable that uses an analysis of accounts receivable to estimate the amount that will be uncollectible. (p. 413) 8. Analyzing accounts receivable according to when they are due. (p. 414) 9. Canceling the balance of a customer account because the customer does not pay. (p. 418) 10. Recording uncollectible accounts expense only when an amount is actually known to be uncollectible. (p. 419)
Answer:
Uncollectible accountsAllowance methodBook valueBook value of accounts receivableNet realizable valuePercent of sales methodPercent of accounts receivable methodAging of accounts receivablesWriting off an accountDirect write off methodSophia is an architect and she is trying to decide whether to hire Jacob, a draftsman, to assist with her work. Sophia could hire Jacob at $20 per hour but it would take him three times as long to complete a task as it takes Sophia. Sophia is able to earn $90 per hour and has more architectural jobs than she is able to handle. Which of the following is true?
Answer:
b. Jacob should be hired at the $20 per hour wage rate
Options
a. Sophia should do the drafting work herself because she has the lower opportunity cost
b. Jacob should be hired at the $20 per hour wage rate
c. Sophia should not hire Jacob because it would be faster for her to do the work herself
d. Jacob should be hired, but only if he is paid more than $30 per hour
Explanation:
Sophia cannot fullfil their client request on time without hiring an employee Assuming Jacob is the best possible candidate for Sophie she should consider to hire it as three hours of Jabor will cost 60 dollars while an hour of his work is worth 90 dollars
Thus, making convinient to hire it as there is a profit of 30 dollars.
We should also conider jacob will earn experience over time and this will make it a better employee in the long-run.
Under the UCC, a(n) ____ is a practice or method of dealing, regularly observed and followed in a place or vocation or trade. A. course of dealing B. usage of trade C. course of performance D. integrated document
Option B
Under the UCC, a(n) usage of trade is a practice or method of dealing, regularly observed and followed in a place or vocation or trade.
Explanation:
Under section 2 of the Uniform Commercial Code, usage of trade is frequently employed to assist in rendering deals and to present terms distinct purposes.
A usage of trade in a manner or process of distributing ought such consistency of practice in a place, employment, or commerce to sustain an expectation that it will be perceived concerning the transaction. Proof of a usage of trade may be possible as improving the express terms of an argued contract when it does not disclaim them.
You are the Cisco administrator for your company. A new branch office is opening and
you are selecting the necessary hardware to support the network. There will be two
groups of computers, each organized by department. The Sales group computers will
be assigned IP addresses ranging from 192.168.1.2 to 192.168.1.50. The Accounting
group will be assigned IP addresses ranging from 10.0.0.2 to 10.0.0.50. What type of
device should you select to connect the two groups of computers so that data communication
can occur?
A. Hub
B. Switch
C. Router
D. Bridge
You should select Router to connect the two groups of computers so that data communication can occur.
Explanation:Routers are essential for the communication between two or more computers that are connected to a network. The primary function of routers is making connection between various networks and the data packets will be forwarded to the computers of same network of different networks.
It is a layer 3 device. This because the data that is contained in the layer 3 IP packet that contains the IP address of the destination to which the packet should be forwarded plays a very important role in making decisions related to the data packets forwarding. Thus a Router must be selected for connecting two groups of computer for data transfer and communication.
Which of the following is an asset account?A.Wages PayableB.Unearned RevenueC.Accounts ReceivableD.Notes Payable
Answer:
C.Accounts Receivable
Explanation:
The balance sheet comprises of total assets, total liabilities and the stockholder equity
The total assets could be further classified into a current asset, fixed asset, and the intangible assets
Whereas
The total liabilities comprise of current liabilities and the long term liabilities
So, the wages payable, unearned revenue, and the note payable is a liability account while the account receivable is a current asset account
Viewers of the World Series are likely to see ads for beer and cars, and viewers of the Academy Awards broadcast are likely to see ads for clothing and hair care products, due to
A. cultural expectations.
B. male domination in corporate boardrooms.
C. differing demographic data for potential and past viewers.
D. marketers' general perceptions.
E. multiyear advertising contracts that cannot be broken.
Answer:
Viewers of the World Series are likely to see ads for beer and cars, and viewers of the Academy Awards broadcast are likely to see ads for clothing and hair care products, due to;
C. differing demographic data for potential and past viewers.
Explanation:
Marketing is the selling of a product by the use of various channels to improve a company's market share. An aspect of marketing is advertising. Advertising is the use of visual and audio material to promote a product for commercial purposes. Research has shown that effective advertisement campaigns often translate to increased demand for advertised products. When companies increase the sale of their products, there is a huge potential in increasing the company's profit margins. The major aim of most companies in commercial business is to increase their profit margins since this is what is considered as success in commercial business.
Before deciding to produce an advertisement there are many factors that need to be considered. An example is to analyse the demographic data. Demographic data is information that is characteristic about a certain group of people. In our case, advertisements usually target a given audience based on age, income levels, and gender. Viewers of the world Series are mostly of the male gender so it would be advisable to run advertisements that appeal to that group.
What is the document that the marketing researcher pledges to deliver as a result of the marketing research process?
Answer: Marketing research proposal
Explanation: A marketing research proposal simply means a detailed outline of market research plan. It entails the processes involves in the research study which includes the aims and objectives of the market research which is included in the problem statement, Developing ways to solve the identified problem, Formulating the design or model for the research, collection of required data (both qualitative and quantitative) , data preparation, cleansing and analysis and Report preparation and presentation.
A firm successfully implementing a differentiation strategy would expect: a. to have high levels of power over suppliers. b. to charge premium prices. c. customers to be sensitive to price increases. d. customers to perceive the product as standard.
A firm successfully implementing a differentiation strategy would expect b. to charge premium prices.
Why would they charge premium ?A differentiation strategy is a business strategy that focuses on creating products or services that are perceived by customers as being unique and valuable. This can be done by offering products or services with features or benefits that are not available from competitors, or by offering products or services that are of higher quality than those of competitors.
When a firm successfully implements a differentiation strategy, it can charge premium prices for its products or services. This is because customers are willing to pay more for products or services that they perceive as being unique and valuable.
Option B is correct.
Find out more on differentiation at https://brainly.com/question/31038266
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Dan owns a small grocery store. When an item doesn't sell well, he'll typically stop carrying it in favor of something that sells better. What type of efficiency does this help him achieve?
Answer:
allocative efficiency
Explanation:
allocative efficiency refers to an effiency that is achieved by focusing your resources on something that give you the most value.
This is reflected on Dan's action above.
the items that he sell on his grocery store is considered his resource. He need to spend money in order to buy it before he can sell it with higher price.
But, when a particular item is not selling well, he replace that item with another item. This mean that he allocated his resources into the new items because he believe that it will give him the most value.
Chris has a job as a sales representative for a pharmaceutical company. The company offers both quarterly and annual bonuses based on performance. The company also has a profit-sharing plan for its employees. This demonstrates Fayol's principle of __________.a. subordination of individual interests to the common interest.
b. equity.
c. remuneration of personnel.
d. esprit de corps.
e. initiative.
Answer:
c. remuneration of personnel
Explanation:
Henri Fayol developed the fourteen principles of management.
One of the fourteen principles being, Remuneration of personnel.
Fayol was of the opinion that in order to extract the best performance from employees, appropriate remuneration system must exist in an organization.
This meant emphasizing on employee satisfaction by following fair remuneration practices coupled with adequate incentive system which rewards good performance.
In the given case, the pharmaceutical company offers performance based incentives in the form of quarterly as well as annual bonuses in addition to an existing profit-sharing plan for employees. This is an example of Fayol's principle of Remuneration of personnel.
People are not motivated when they do not have clear goals and do not know what is expected of them. ________ reduces uncertainty and indicates what everyone is expected to accomplish.
Answer:
Planning
Explanation:
Planning is the process of setting goals and defining the actions required to achieve the goals.
The planning process involves deciding before hand, what is to be achieve or what is to be done, ways by which it will be done and when it will be done. It helps to reduce uncertainty by setting directions that is to be followed to accomplish the set objectives.
Potential competitors may enter an industry and begin to take market share from existing companies. What would be one of the largest challenges a new entrant would need to overcome to be successful when entering the industry?
Production costs are high and require high volumes to achieve profitability.
Explanation:One of the largest challenges that will be faced by the potential competitors when they try to enter an industry will be that they will face that cost of production will be higher and they would require higher volumes for achieving profits. When a company is new to an industry there will be competitors who are already established well on that particular industry.
The challenges and the opportunity that are in existence will be well known to the existing competitors. They already have buyers and suppliers chain. Hence, the new entrant will have higher production cost and also they require higher volumes to achieve profits.
Jane and Sarah were watching the evening news when viewers were asked to weigh in on the city's proposed tax increase. Later in the broadcast, these results were posted. Both Jane and Sarah were skeptical: 68 percent of the viewers supported the tax increase. They wondered how well the type of people who chose to participate would represent the views of all the city's citizens. Jane and Sarah are demonstrating:
Answer:
Critical thinking
Explanation:
Critical thinking refers to gathering information, analyzing it in depth so as to arrive at a conclusion which guides an individuals actions.
Critical thinking requires precision as a trait coupled with high observation skills. Such an activity requires impartial thoughts, an objective mind, not influenced by personal bias or prejudice.
In the given case, Jane and Sarah are assessing the views of the viewers with regard to proposed tax increase, based upon the results announced by the broadcaster. Skepticism is one of the traits required for critical thinking as it makes an individual probe further.
Jane and Sarah are demonstrating critical thinking.
Adventure Holidays sells thousands of tour packages each month through its branches. A branch manager's salary would be a(n) _____ drop item here of generating a particular lead.
Answer:
Indirect cost
Explanation:
Indirect costs are costs that are not directly accountable to a cost object (such as a particular project, facility, function or product). Indirect costs may be either fixed or variable.
Answer:
Indirect cost.
Explanation:
The gains Adventure Holidays sells through its branches attracts cost. The salary is the branch manager is an indirect cost for selling tour packages through the branches.
So the branches will need to meet a sales target that will cover the cost incurred at the branch, and turn a profit for adventure holidays.
Fifteen-year-old Hermione is able to write a much more complex answer than 10-year-old Ginger to the question, "Compare the advantages and disadvantages of using simple spells for self-protection." This is because, as an adolescent, Hermione is able to think:A. egocentrically.
B. deductively.
C. in metacognitive ways. D. in multiple dimensions.
Answer:
D. In Multiple dimensions
Explanation:
As an adolescent, Hermione is able to do more complex thinking. Also known as formal logical operations and includes the ability to reason from known principles, consider many points of view, think about the process of thinking and do alot of abstract thinking. Ginger can think in multiple dimensions because at his age they have the ability to only think in concrete ways.
Simon and his managers are discussing the unemployment, inflation, and interest-rate trends that might affect their chain of sandwich shops over the next 12 months and the projected growth in the areas where the stores are located. The managers are studying the ______ forces in their organization's general environment.
Answer:
Economic
Explanation:
Economic factors are important because they can affect a company's revenues and profits. Simon and his manager are discussion economic factors which include inflation, interest rate and inflation. These economic forces are country-specific factors because they are macroeconomic variables. They affect a country and indirectly affect firms and organisations. Managers need to study economic forces in organisations general environment.
You are scheduled to receive $7,500 in three years. When you receive it, you will invest it for eight more years at 7.5 percent per year. How much will you have in eleven years?
Answer:
$13,376
Explanation:
Given an initial investment (P) of $7,500 invested for 8 years (n) at 7.5% per annum (r),
the amount at the end of the investment will be
[tex]A = P (1+r)^{n}[/tex]
[tex]= 7,500 * (1.075)^{8}[/tex]
[tex]= 7,500 * 1.7835[/tex]
= $13,376.
When categorizing investments for the financial account component of the balance of payments the ________ is an investment where the investor has no control whereas the ________ is an investment where the investor has control over the asset. A) direct investment; indirect investment B) portfolio investment; direct investment C) portfolio investment; indirect investment D) direct investment; portfolio investment
Answer:
The answer is B.Portfolio Investment and direct Investment.
Explanation:
Portfolio Investments are investments made in a group of assets (equity, debt, mutual funds, derivatives or even bitcoins) instead of a single asset with the objective of earning returns is commensurate with the risk profile of the investor.
Direct Investment commonly referred to as foreign direct investment (FDI), refers to an investment in a foreign business enterprise designed to acquire a controlling interest in this enterprise.
You were planning to spend Saturday working at your part-time job, but a friend asks you to go skiing. Which of the following are included in the true cost of going skiing? Check all that apply.
1.The rental of any ski equipment you need
2.The cost of a lift ticket
3.The cost of your ski jacket you purchased last year
4.The wages you forgo by going skiing
Answer:
The rental of any ski equipment you need
The cost of a lift ticket
The wages you forego by going skiing
Explanation:
True cost includes all the cost incurred when you decide to go skiing. It includes opportunity cost and amount spent skiing
The opportunity cost of skiing are the wages you forgo when you go skiing.
The other true costs are the expenses you incur while skiing. They are: The rental of any ski equipment you need
The cost of a lift ticket.
The cost of the ski jacket isn't added because you already own the jacket.
I hope my answer helps you
Which quality of an asset makes it more appropriate for the fair value principle rather than the historical cost principle?
Answer and Explanation:
Fair value refers to the current market price of the asset while historical cost is the cost at which the asset was acquired. Fair market value will always be higher than historical cost so it reflects the actual worth of the asset.
One of the qualities that makes valuing current assets at fair value rather than historical cost is the availability and reliability of current market price or fair value of current assets.
Derek has liquid assets of $4,450 and he saves $615 a month. His current liabilities are equal to $1,750 and monthly credit payments of $425. Derek’s gross income is $5,900 each month and a take-home pay of $4,775. What is Derek’s debt-payments ratio?
Final answer:
Derek's debt-payments ratio is calculated by dividing his monthly credit payments ($425) by his take-home pay ($4,775). This results in a ratio of 0.089 or 8.9%, indicating a healthy financial state as it is below the recommended maximum of 20%.
Explanation:
Derek’s debt-payments ratio is a tool used to assess his financial health by comparing the amount of money he owes each month to his take-home pay. To calculate this ratio, we would take Derek's monthly credit payments and divide them by his take-home pay. Thus, the calculation for Derek’s debt-payments ratio is:
Monthly Credit Payments / Take-Home Pay = $425 / $4,775 = 0.089 or 8.9%
This means that 8.9% of Derek's monthly take-home pay goes towards credit payments, which is under the recommended maximum of 20%. Having a debt-payments ratio under this threshold generally indicates good financial health and that Derek is managing his credit responsibly.