In: Finance
The Canton Corporation shows the following income statement. The
firm uses FIFO inventory accounting.
CANTON CORPORATION Income Statement for 20X1 |
|||
Sales | $ | 307,100 | (16,600 units at $18.50) |
Cost of goods sold | 199,200 | (16,600 units at $12.00) | |
Gross profit | $ | 107,900 | |
Selling and administrative expense | 18,426 | ||
Depreciation | 11,600 | ||
Operating profit | $ | 77,874 | |
Taxes (30%) | 23,362 | ||
Aftertax income | $ | 54,512 |
a. Assume in 20X2 the same 16,600-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 $12.00 per unit. Also assume selling and administrative expense will be 6 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 income increase as a result 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 16,600 units, but the sales price decreases by 15
percent from its year 20X2 level. Also, because of FIFO inventory
policy, cost of goods sold reflects the inflationary conditions of
the prior year and is $12.50 per unit. Further, assume selling and
administrative expense will be 6 percent of sales and depreciation
will be unchanged. The tax rate is 30 percent. Compute the aftertax
income. (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.)
________