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In: Accounting

The following table contains data obtained from annual reports of Reiff Inc, a sandal manufacturer and...

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.

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