FRA Decision tree

Renil J Kotak

PGP12262

MERRIMACK TRACTORS AND MOWERS INC: LIFO OR FIFO?

Merrimack was a significant regional producer and distributor of large commercial lawn
mowers after World War I, based on ideas created by Merrimack Tractors and Mowers
President and COO Ricardo Martino's grandfather. The company was started in 1980 and went
public ten years later. The company has about 4,000 stockholders in 2008, including a number
of mutual funds. About a quarter of the outstanding shares are owned by members of the
Martino family, and the stock is traded on the NASDAQ. In the early 1980s, the final
manufacturing activity in Nashua was shut down by management. Outsourcing production to
Japanese and later Chinese manufacturers makes sense because labour costs in Japan and later
China have historically been lower than in the United States. However, a lot has changed in
2008. Wages and labour costs have risen as a result of China's economic progress, as has
spending on materials and energy. The loyal suppliers of Merrimack have no choice but to raise
the price of their lawn mowers. Although the company's management has studied these
patterns, it has not explored re-establishing the manufacturing idea in Nashua. Cash flow was
regarded an acceptable earnings indicator in the early days of the business as a tiny
unincorporated business operated by its founders. The profit is calculated by comparing the
cash income with the cost of manufacturing the mower. Since its beginning in 1980, the
company has used LIFO to save money on taxes so that it can invest the money saved. He has
amassed a total of $ 2 million in savings since 1980. If the company uses the first-in, first-out
principle for inventory accounting. Merrimack's revenue figures for 2008 may be greater than in
2007, but this rise will almost definitely be offset by higher taxes. Colburn agreed to give
analysis to show how the LIFO to FIFO conversion will operate and why 2008 might be the best
year to contemplate it. Because IFRS forbids the use of LIFO technology, and because changes
in US accounting laws to international standards may necessitate a move away from LIFO in the
future, 2008 could be a good year to make adjustments.