Question

The manager of Sheridan is given a bonus based on net income before taxes. The net income after taxes is $51300 for FIFO and $42200 for LIFO. The tax rate is 30%. The bonus rate is 20%. How much higher is the manager's bonus if FIFO is adopted instead of LIFO?

Answer 1

$2,600

Step-by-step explanation:

FIFO Amount in $ LIFO

Net Income after taxes 51,300 42,200

Net Income before taxes

51,300/(1-30%) 73,286

42,200/(1-30%) 60,286

Bonus at 20% of income before taxes

73,286*20% 14,657

60,286*20% 12,057

excess amount of bonus in case of FIFO will be (14,657-12,057)=$2,600