Question

The manager of Splish is given a bonus based on net income before taxes. The net income after taxes is $72820 for FIFO and $61200 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

$3,320

Step-by-step explanation:

The computation of the amount higher is the manager bonus if FIFO is adopted is shown below:-

But before that first we have to determine the amount which is shown below:

= Net income after taxes under FIFO - net income after taxes under FIFO

= $72,820 - $61,200

= $11,620

Now the tax rate is 0.30%

So after considering the tax rate and the bonus rate the amount is

= $11,620 ÷ (1 - 0.30) × 20%

= $3,320