The comparative income statements and edited inventory footnote for Oxford Industries, Inc. for Year 3 follow. Located in Atlanta, Oxford designs, manufactures, markets, and sells consumer apparel products for both men and women. Its ticker symbol is OXM.

Oxford Industries, Inc. and Subsidiaries

Consolidated Statements of Earnings

		Years Ended
($ in thousands, except per share amounts)		June 2, Year 3	May 28, Year 2	May 29, Year 1
Net sales		$839,533	$862,435	$774,518
Costs and expenses
	Cost of goods sold	685,841	698,170	619,690
	Selling, general and administrative	112,056	116,284	111,041
	Interest, net	3,827	4,713	3,421
		801,724	819,167	734,152
Earnings before income taxes		37,809	43,268	40,366
Income taxes		14,368	16,875	15,743
	Net earnings	$ 23,441	$ 26,393	$ 24,623
Basic earnings per common share		$3.04	$3.15	$2.79
Diluted earnings per common share		$3.02	$3.11	$2.75

Edited Inventory Footnote*

The components of inventories are summarized as follows:

($ in thousands)	June 2, Year 3	May 28, Year 2
Finished goods	$ 90,961	$ 92,195
Work in process	25,903	24,579
Fabric	28,255	23,280
Trim and supplies	8,118	6,874
	$153,237	$146,928

The excess of replacement cost over the value of inventories based on the LIFO method was $37,154 at June 2, Year 3; $37,367 at May 28, Year 2; and $39,205 at May 29, Year 1. Changes in the LIFO reserve increased earnings $0.02 per share basic in Year 3, $0.13 per share basic in Year 2, and decreased earnings $0.06 per share basic in Year 1.

During fiscal Year 3, inventory quantities were reduced, which resulted in a liquidation of LIFO inventory layers carried at lower costs that had prevailed in prior years. The effect of the liquidation was to decrease cost of goods sold by approximately $147 and to increase net earnings by $91 or $0.01 per share basic. During fiscal Year 2, the effect of [the Year 2] liquidation was to decrease cost of goods sold by approximately $1,174 and to increase net earnings by $716 or $0.09 per share basic. During fiscal Year 1, the effect of [the Year 1] liquidation was to decrease cost of goods sold by approximately $591 and to increase net earnings by $361 or $0.04 per share basic.

Required:

1. Based on the available information, provide an estimate of Oxford Industries earnings before income taxes for Year 3 and Year 2 if the company had used FIFO accounting.

2. Using the available data, provide estimates of the amount of realized holding gains (inventory profits) that were included in Year 3, Year 2, and Year 1 earnings before income taxes under the LIFO method.

3. Explain why the estimated FIFO income numbers (see requirement 1) are higher or lower than those under the LIFO method. (Hint: To do this prepare a reconciliation of changes in the LIFO reserve for Year 3 and Year 2 as illustrated on page 496 of the text.)

4. As of the end of Year 3 and Year 2, compute the total amount of income tax saved by Oxford from the time of its initial adoption of LIFO. Ignore present value effects in your calculations. For the fiscal Year 3 alone, did Oxford pay higher or lower income tax under LIFO compared to what it would have paid under FIFO? How much?

5. Compute Oxford’s inventory turnover ratio (without making any adjustments) for Year 3 under the LIFO cost flow assumption. (Express it in number of days.) Does this number provide a good estimate of the number of days inventory is held by Oxford Industries? If not, propose (and defend) an alternative approach to calculating inventory turnover. Show supporting calculations.

Answer rating: 100% (QA)

1 Year 3 37809 Year 2 43268 2 Year 3 147000 Year 2 1174000 Year 1 591000 3 The estimated FIFO income ... View the full answer