The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting. Sales Cost of goods sold Gross profit Selling and administrative expense Depreciation Operating profit Taxes (30%) Aftertax income Aftertax income CANTON CORPORATION Income Statement for 20X1 $ 126,000 73,500 $ 52,500 7,560 12,700 $32,240 9,672 $ 22,568 a. Assume in 20X2 the same 10,500-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 $7.00 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. Note: Do not round intermediate calculations. Round your answer to the nearest whole number. Aftertax income increased by b. In part a, by what percent did aftertax income increase as a result of a 10 percent increase in the sales price? Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. (10,500 units at $12.00) (10,500 units at $7.00) Aftertax income % c. Now assume that in 20x3 the volume remains constant at 10,500 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 $7.50 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. Note: 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.
The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting. Sales Cost of goods sold Gross profit Selling and administrative expense Depreciation Operating profit Taxes (30%) Aftertax income Aftertax income CANTON CORPORATION Income Statement for 20X1 $ 126,000 73,500 $ 52,500 7,560 12,700 $32,240 9,672 $ 22,568 a. Assume in 20X2 the same 10,500-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 $7.00 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. Note: Do not round intermediate calculations. Round your answer to the nearest whole number. Aftertax income increased by b. In part a, by what percent did aftertax income increase as a result of a 10 percent increase in the sales price? Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. (10,500 units at $12.00) (10,500 units at $7.00) Aftertax income % c. Now assume that in 20x3 the volume remains constant at 10,500 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 $7.50 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. Note: 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting.
Sales
Cost of goods sold
Gross profit
Selling and administrative expense
Depreciation
Operating profit
Taxes (30%)
Aftertax income
Aftertax income
CANTON CORPORATION
Income Statement for 20X1
$ 126,000
73,500
a. Assume in 20X2 the same 10,500-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 $7.00 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.
Note: Do not round intermediate calculations. Round your answer to the nearest whole number.
Aftertax income increased by
$ 52,500
7,560
12,700
$32,240
9,672
$ 22,568
b. In part a, by what percent did aftertax income increase as a result of a 10 percent increase in the sales price?
Note: Do not round intermediate calculations. Input your
as a percent rounded to 2 decimal places.
Aftertax income
(10,500 units at $12.00)
(10,500 units at $7.00)
%
c. Now assume that in 20X3 the volume remains constant at 10,500 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
$7.50 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.
Note: 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.
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