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Merrimack Tractors and Mowers - LIFO or FIFO

The document compares the Merrimack Tractors and Mowers income statement for 2008 using the LIFO and FIFO inventory costing methods. Under LIFO, cost of goods sold is $62,000 resulting in net income of $1,950. Under FIFO, cost of goods sold is lower at $50,500 leading to higher gross margin and net income of $9,425, which is $7,475 more than under LIFO.

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Ponu Ranjan
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234 views2 pages

Merrimack Tractors and Mowers - LIFO or FIFO

The document compares the Merrimack Tractors and Mowers income statement for 2008 using the LIFO and FIFO inventory costing methods. Under LIFO, cost of goods sold is $62,000 resulting in net income of $1,950. Under FIFO, cost of goods sold is lower at $50,500 leading to higher gross margin and net income of $9,425, which is $7,475 more than under LIFO.

Uploaded by

Ponu Ranjan
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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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)
Units
Per Unit
Cost ($'000)
Units
15000
900
13500
10000
1400
14000
10000
1500
15000
10000
1600
16000
10000
1700
17000
55000
75500
40000
62000
15000
13500
Income Statement ($'000)
2008 (LIFO)

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

2008 (FIFO)
15000
10000
10000
10000
10000
55000
40000
15000

2008 (FIFO)
75000
62000
13000
10000
3000
1050
1950

In case of LIFO method, inventory is taken from bottom 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

2008 (FIFO)
Per Unit
Cost ($'000)
900
13500
1400
14000
1500
15000
1600
16000
1700
17000
75500
50500
25000

2008 (FIFO)

ncome of 9425-1950=7475

75000
50500
24500
10000
14500
5075
9425
7475

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