In: Accounting
The following table contains data obtained from annual reports of Reiff Inc, a sandal manufacturer and retailer:
Years ended December 31 (in $thousands)
2014 |
2015 |
2016 |
|
Sales |
$535,788 |
$569,413 |
$592,696 |
COGS |
($329,172) |
($349,597) |
($362,109) |
Gross profit |
$206,616 |
$219,816 |
$230,587 |
LIFO Liquidation |
$2,973 |
$3,337 |
$5,890 |
(net of taxes) |
Required:
a. Compute the gross margin percentage for each year 2014 - 2016.
b. REIFF INC. disclosed the effect of LIFO liquidations net of income tax. Assuming a tax rate of 30%, recompute REIFF INC.’s gross margin for the years 2014 - 2016 after removing the effect of LIFO liquidation. (Hint: This means that COGS above are determined after reflecting the effect of before-tax LIFO liquidation)
c. Explain why the trend in gross margin % shown in part b is a better indicator of REIFF INC.’s performance than the reported gross margin % in part a.