Merrimack Tractors and Mowers, Inc: Lifo or Fifo ?
Merrimack Tractors and Mowers, Inc.: LIFO or FIFO?
1.- Study the financial information for reel mower units that James Colburn prepared for Rick Martino. (Assume that the reel mower units are typical of all classes of inventory at Merrimack). Prepare a pro-forma income statement assuming no changes in accounting policy for 2008, and assuming the company sells 10,000 units each quarter at a price of 2,000 per unit with Sales General and Administration costs the same as for 2007.
Sales Quarter Units '000s Unit $ $ '000s 1 10 2,000 20,000 2 10 2,000 20,000 3 10 2,000 20,000 4 10 2,000 20,000 80,000 LIFO Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold (CGS)
2008 Units '000s Price $ '000s Units '000s Price $ '000s Units '000s Price $ '000s Units '000s Price $ '000s
Q1 15 900 13,500 10 1,400 14,000 15 900 13,500 10 1,400 14,000
Q2 15 900 13,500 10 1,500 15,000 15 900 13,500 10 1,500 15,000
Q3 15 900 13,500 10 1,600 16,000 15 900 13,500 10 1,600 16,000
Q4 15 900 13,500 10 1,700 17,000 15 900 13,500 10 1,700 17,000
Year 15 900 13,500 40 1,550 62,000 15 900 13,500 40 1,550 62,000
Proforma Income Statement, Year End 2008
LIFO 2007 2008 $ '000s $ '000s
Sales 67,000 80,000
CGS 46,000 62,000
Gross Margin 21,000 18,000
Gross Margin % 31% 23%
Selling and Admin Exp. 10,000 10,000
Income before taxes 11,000
1.- Study the financial information for reel mower units that James Colburn prepared for Rick Martino. (Assume that the reel mower units are typical of all classes of inventory at Merrimack). Prepare a pro-forma income statement assuming no changes in accounting policy for 2008, and assuming the company sells 10,000 units each quarter at a price of 2,000 per unit with Sales General and Administration costs the same as for 2007.
Sales Quarter Units '000s Unit $ $ '000s 1 10 2,000 20,000 2 10 2,000 20,000 3 10 2,000 20,000 4 10 2,000 20,000 80,000 LIFO Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold (CGS)
2008 Units '000s Price $ '000s Units '000s Price $ '000s Units '000s Price $ '000s Units '000s Price $ '000s
Q1 15 900 13,500 10 1,400 14,000 15 900 13,500 10 1,400 14,000
Q2 15 900 13,500 10 1,500 15,000 15 900 13,500 10 1,500 15,000
Q3 15 900 13,500 10 1,600 16,000 15 900 13,500 10 1,600 16,000
Q4 15 900 13,500 10 1,700 17,000 15 900 13,500 10 1,700 17,000
Year 15 900 13,500 40 1,550 62,000 15 900 13,500 40 1,550 62,000
Proforma Income Statement, Year End 2008
LIFO 2007 2008 $ '000s $ '000s
Sales 67,000 80,000
CGS 46,000 62,000
Gross Margin 21,000 18,000
Gross Margin % 31% 23%
Selling and Admin Exp. 10,000 10,000
Income before taxes 11,000