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Problem 3-31 Inflation and inventory accounting effect (LO3-5) The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting. CANTON CORPORATION Income
Problem 3-31 Inflation and inventory accounting effect (LO3-5) 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 $7.00) Gross profit $ 149,600 Selling and administrative expense 13,640 Depreciation 15,900 Operating profit $ 120,060 Taxes (30%) 36,018 Aftertax 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. (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.) Aftertax income 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.) Gain in aftertax income %
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