The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting CANTON CORPORATION...

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The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting CANTON CORPORATION Income Statement for 20X1 Sales Cost of goods soild Gross profa Seling and administrative expense 170,800 (12,200 units at $14.00) 85,400 (12.200 units at $7.00) 85,400 8,540 1,000 65,860 Operating proft Tales (30%) ASertax inoome 19.758 $ 46,102 a. Assume in 20x2 the same 12.200-unt volume is maintained, but that the sales price increases by 10 peroant Because of FFO inventory policy old inventory wilstil be charged or at $7.00 per unit. Also assume seling 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.) b. in part a, by what percent did aftertax inoome increase as a resut of a 10 percent increase in the sales price? (Do not round intermediate calculations Input your answer as a percent rounded to 2 decimal places)

c. Now assume that in 20X3 the volume remains constant at 12.200 units, but the sales price decreases by 15 percent froms its year 20X2 level. Also, because of FIFO inventory policy, cost of goods sold reflects the inflationary conditions of the prior year and is $7.50 per unit. Further, assume selling and administrative expense will be 5 percent of sales and depreciation will be unchanged. The tax rate is 30 percent. Compute the aftertax inoome. (Round the sales price per unit to 2 decimal places but do not round any other intermediate calculations. Round your final answer to the nearest whole dollar amount income

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Answer 1

Answer #1

Req a:
Income Statement
Sales revenue (12200*14+10%)	187880
Less: Cost of g oods sold (12200*7)	85400
Gross profit	102480
Selling and admin expenses	9394	(187880*5%)
Depreciation	11000
Operating profits	82086
taxes @ 30%	24625.8	(82086*30%)
After tax income	57460.2

Req b:
After tax income	57460.2
Less: After tax income f 2001	46102
Increase in After tax Income	11358.2
Divide: After tax income of 2001	46102
% increase in After tax income	24.64%

Req c:
Income Statement
Sales revenue (12200*15.4 -15%)	159698
Less: Cost of g oods sold (12200*7.5)	85400
Gross profit	74298
Selling and admin expenses	7984.9	(159698*5%)
Depreciation	11000
Operating profits	55313.1
taxes @ 30%	16593.93	(55313.1*30%)
After tax income	38719.17

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Answer 2

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