29. Bard Corporation shows the following income statement. The firm uses FIFO inventory accounting.

a. Assume in 2009 the same 10,000-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 $10 per unit. Also assume that 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 2009.

b. In part

a, by what percent did aftertax income increase as a result of a 10 percent increase in the sales price? Explain why this impact occurred.

c. Now assume that in 2010 the volume remains constant at 10,000 units, but the sales price decreases by 15 percent from its year 2009 level. Also, because of FIFO inventory policy, cost of goods sold reflects the inflationary conditions of the prior year and is $11 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 income.

Transcribed Image Text:

Sales.... Cost of goods sold Gross profit.... Selling and administrative expense. Depreciation Operating profit. Taxes (30%) Aftertax income BARD CORPORATION Income Statement for 2008 $200,000 (10,000 units at $20) 100,000 (10,000 units at $10) 100,000 10,000 20,000 70,000 21,000 $ 49,000