The following table contains data obtained from annual reportsof Stride-Rite, a shoe manufacturer and retailer:
|
Years ended December 31 (in $thousands)
|
|
|
|
|
|
|
2006
|
2007
|
2008
|
|
Sales
|
$515,728
|
$539,413
|
$572,696
|
|
COGS
|
($328,172)
|
($348,587)
|
($362,108)
|
|
Gross profit
|
$187,556
|
$190,826
|
$210,588
|
|
|
|
|
|
LIFO Liquidation
|
$3,379
|
$1,733
|
0
|
|
(net of taxes)
|
|
|
|
Required:
a. Compute the gross margin percentage for each year2006-2008.
b. Stride-Rite disclosed the effect of LIFO liquidationsnet of income tax. Assuming a tax rate of 35%, recomputeStride-Rite's gross margin for the years 2005-2007 afterremoving the effect of LIFO liquidation. (Hint: This meansthat COGS presented in template is determined after reflecting theeffect of before-tax LIFO liquidation)
c. Explain why the trend in gross margins shown in part bis a better indicator of Stride-Rite's performance than thereported gross margins.