Submission By: Narendra Agrawal, Section A

Beginnning Inventory
Q1 purchases
Q2 purchases
Q3 purchases
Q4 purchases
Available for sales
Actual Sales (less)
Ending Inventory

Merrimack Tractors And Mowers - LIFO or FIFO
Pro-forma Income Statement
2008 (LIFO)
2008 (LIFO)
Units
Per Unit Cost ($'000) Units
Per Unit
15000
900
13500
15000
900
10000
1400
14000
10000
1400
10000
1500
15000
10000
1500
10000
1600
16000
10000
1600
10000
1700
17000
10000
1700
55000
75500
55000
40000
62000
40000
15000
13500
15000

Sales
Cost Of goods sold
Gross Margin
Selling And Admin Expense
Income Before taxes
IT (35%)
Net Income

Income Statement ($'000)
2008 (LIFO)
75000
62000
13000
10000
3000
1050
1950

2008 (FIFO)

7500
5050
2450
1000
1450
507
942

In case of LIFO method, inventory is picked bottom-up from Q4 upto Q1.
So, cost of sales = 17000+16000+15000+14000=62000
In case of FIFO, inventory is picked top-down from beginning inventory upto half of Q3.
So cost of sales = 13500+14000+15000+8000 = 50500
Sales of 40000 assumed to be at 75000 for 40000 units spread equally over 4 quarters.
Effectively, cost of sales in case of FIFO is lower than LIFO by 62000-50500 = 11500.

Hence gross margin is higher by 11500 leading to an additional tax of 4025 and higher net income
of 9425-1950=7475

4 quarters.Submission By: Narendra Agrawal. and higher net income . Section A 2008 (LIFO) Cost ($'000) 13500 14000 15000 16000 17000 75500 50500 25000 2008 (FIFO) 75000 50500 24500 10000 14500 5075 9425 7475 half of Q3. 11500.

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