| CASE STUDY- INVENTORY- MERRIMACK TRACTORS AND MOWERS, INC. | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ques 1 | Give a very brief description of the situation that Rick Martino and Merrimack are facing | | | | | | | | | | | | | | | | | | | | | Ans | Merrimack Tractors and Mowes Inc, is based in Nashua and Ricardo Martino is the president and chief operating officer. The company had outsourced manufacturing to japan and later to china to benefit cost for all the tractors and machines . Even with shipping cost the mowers ‘ variable cost was substantially less than it would have been in Nashua.
In 2008 due to the economic development production & logistics cost were rising in china which affected Merrimack Tractors and Mowers Inc.
These trends were in direct contrast to competitors which still retained material in US manufacturing which was less affected by the increased in cost in Asia.
The income of Merrimack of 2008 was below that of 2007 and earlier years and there was a pressure on Rick Martino to keep earning growing. Company's controller had idea to maintain the trend in income growth by changing the method of accounting for inventories of Tractors, mowers and parts. The controller suggested Rick to change the accounting method from LIFO to FIFO which would report to higher income figure in 2008 which subsequently would increase the taxes payable.
Inference:
After comparing income statements of year 2008 based on LIFO and FIFO methods we can observe a drastic impact it had on NET INCOME. NETINCOME is positive when FIFO method is used and negative when LIFO is used.
• As per Colburn’s report,