Merrimack Tractors and Mowers

  2008 (LIFO) 2008 (FIFO)

Cost
Cost Per Cost
  Units Cost Per unit (X1000) Units unit (X1000)
Beginning Inventory 15000 900 13500 15000 900 19000
Purchases, Q1 10000 1400 14000 10000 1400 14000
Purchases, Q2 10000 1500 15000 10000 1500 15000
Purchases, Q3 10000 1600 16000 10000 1600 16000
Purchases, Q4 10000 1700 17000 10000 1700 17000
Available for sale 55000 75500 55000 75500
Cost of sales 40000 62000 40000 56000
Ending Inventory 15000 13500 15000 25000

Income Statement ( thousand dollars) Assume Sales to be ‘S’ thousand dollars

LIFO FIFO
Sales S S
COGS 62000 56000
Gross Margin S-62000 S-56000
Tax @35% 0.35*(S-62000) 0.35*(S-56000)
Extra Income Tax 2100

Extra Income Tax to be paid =2.1 million

Improvement in Gross margin =$15 million