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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	\(272,800 (17,600 units at \)15.50)
Cost of goods sold	123,200 (17,600 units at \(7)
Gross profit	\)149,600
Selling and administrative expenses	13,640
Depreciation	15,900
Operating profits	\(120,060
Taxes (30%)	36,018
After tax income	\)84,042

a. Assume in 20X2 the same 17,600-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 $7 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.

Step by step solution

01

Income statement

Income statement is prepared by an organization to arrive at the net income after tax earned by an organization. It shows the gross revenue and all the expenses incurred by the organization.

02

Calculation of income after tax

CANTON CORPORATION
Income Statement for 20X2
Sales (17,600 X $15.50 X 110%)	$300,080
Cost of goods sold (17,600 x $7)	123,200
Gross profit	$176,880
Selling and administrative expenses (5% of sales)	15,004
Depreciation	15,900
Operating profits	$145,976
Taxes (30%)	43,793
After tax income	$102,183

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