The following table contains data obtained from annual reports of SR, a shoe manufacturer and retailer:
Years ended December 31 (in $thousands)
2008 2009 2010
- sales 535,788 569413 592696
- cogs (329,172) (349,597) (362,109)
- gross profit 206,616 219,816 230,587
LIFO Liquidation $,973 $3,337 $5,890
Required:
a. Compute the gross margin percentage for each year 2008-2010.
b. SR disclosed the effect of LIFO liquidations net of income tax. Assuming a tax rate of 35%, recompute SR's gross margin for the years 2008-2010 after removing the effect of LIFO liquidation. (Hint: This means that COGS presented in template is determined after reflecting the effect of before-tax LIFO liquidation)
c. Explain why the trend in gross margins shown in part b is a better indicator of SR's performance than the reported gross margins in part.