Question

The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting. CANTON CORPORATION Income Statement for 20X1 Sales $ 189,800 (14,600 units at $13.00) Cost of goods sold 116,800 (14,600 units at $8.00) Gross profit $ 73,000 Selling and administrative expense 9,490 Depreciation 14,000 Operating profit $ 49,510 Taxes (30%) 14,853 Aftertax income $ 34,657 a. Assume in 20X2 the same 14,600-unit volume is maintained but that the sales price increases by 10 percent. Because of FIFO inventory policy, old inventory will still be charged off at $8.00 per unit. Also assume selling and administrative expense will be 5 percent of sales and depreciation will be unchanged. The tax rate is 30 percent. Compute aftertax income for 20X2. (Do not round intermediate calculations. Round your answer to the nearest whole number.)

Answer 1

Answer:

Aftertax income     47,278.7

Explanation:

Sales 14,600 units at $14.30 (10%Δ)       208,780

Cost of goods sold (unchanged)           (116,800)  

      Gross profit                                         91,980

S&A expenses; 5% of sales

208,780 x 5% =                                          (10,439)

Depreciation  (unchanged)                       (14,000)  

Operating profit                                           67,541  

Taxes (30% of operating profit)                20,262.3  

Aftertax income                                          47,278.7‬