The manager of Yates Company is given a bonus based on income before income taxes. Net income, after taxes, is $5,600 for FIFO and $5,040 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?
A) $200
B) $300
C) $160
D) $560

Question

Quizplus · Accepted Answer

First, we need to calculate the income before taxes for both FIFO and LIFO:

Income before taxes (FIFO) = $5,600 / (1 - 0.30) = $8,000
Income before taxes (LIFO) = $5,040 / (1 - 0.30) = $7,200

Now we can calculate the manager's bonus for each method:

Bonus (FIFO) = $8,000 x 0.20 = $1,600
Bonus (LIFO) = $7,200 x 0.20 = $1,440

The difference between the two bonuses is:

$1,600 - $1,440 = $160

Therefore, the manager's bonus is $160 higher if FIFO is adopted instead of LIFO. The correct answer is C.

The Manager of Yates Company Is Given a Bonus Based