financial reporting problems at molex

Marrickmack Tractors and Mowers finds itself in a situation where products manufacturing cost are increase faster than competitors cost. The company president and company controller have discussed this problem and the controller has mentioned this idea that if the company changed from LIFO TO FIFO it might be possible to maintain earning growth in 2008. He prepaid a memo to president explain how inventory flow assumption work and provides per forma income statement that show for one product adopting FIFO would allow Merrimack to report higher income in 2008 than it did in 2007 but higher income taxes would have to be paid.
First Objective:
The first objective in this case is to exposed students to different methods of inventory valuation. Students must know about LIFO and FIFO.
Second Objective:
The second objective is to introduces the idea that companies have choices about accounting policies to preparing their financial reports.
FIFO Method:
FIFO involves the assumption that goods sold are the first unit that we purchased that the oldest goods on hand. The remaining inventory is comprised of the most recent purchases.
LIFO Method:
In LIFO method units sold are assumed to be those most recently acquired. The remaining inventory therefore it is assumed to consist of the earlier purchases. Evolution Of Methods
FIFO:
FIFO method is that the oldest purchases cost transferred to the cost of goods sold while the most recent cost remain in inventory. Over the last fifty years we have lived in inflationary economy which means that most prices tend to rise over time. Bt assigning lower cost to the cost of goods sold, FIFO for financial reporting purpose because their goal is to report the highest net income possible. For income tax purpose however