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?

$2,600

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              

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