Question

The manager of Brick Company is given a bonus based on income before income taxes. Net income, after taxes, is $11,200 for FIFO and $9,800 for LIFO. The tax rate is 30%. The bonus rate is 20%. If FIFO is adopted instead of LIFO, the manager's bonus will be higher by $Placeholder for missing word.How much higher is the manager's bonus if FIFO is adopted instead of LIFO?a. $2,800b. $400c. $420d. $84

Answer 1

b. $400

Step-by-step explanation:

Brick Company

Calculation of how much higher the manager's bonus will be if FIFO is adopted instead of LIFO

Using this formula

(Net income FIFO - Net income LIFO)×Bonus rate

($11,200 -$9,800) × .20

=$1,400×.20

= $280

Hence,

$280 ÷(1 - tax rate 30%)

$280÷0.7

= $400

Therefore the amount higher that the manager's bonus will be if FIFO is adopted instead of LIFO would be $400