In this case, Ricardo Martino, President and CEO of Merrimack Tractors and Mowers, Inc. faced an issue of declining sales margin on mowers. The projected net income for 2008 was lower than that of 2007 and he faced pressure from the directors to keep the earnings growing. One of the major reasons for this decline in net income was the rise in cost of importing tractors from China due to a appreciating Chinese currency and rising oil prices, which directly affected the shipping costs. The company management dismissed the idea of reopening the Nashua plant.
Inventory accounting method from LIFO to FIFO was analysed in order to increase net income. However, this would result in an increase in tax payments. Hence at best it could only serve as a temporary solution. So we have further analysed other plausible long term solutions to the problem and provided our recommendations.
II. Introduction
A. ProblemStatement
The main concern presented in the case revolves around improving the financial condition of Merrimack Tractors and Mowers. Declining profits coupled with fierce competition is the main crux of the problem. Inability to expand to their base to a national scale was yet another problem.
Several developments in 2008 such as the Beijing Olympics were reshaping the business environment in China leading to rising labour rates, material and energy costs. Strengthening Yuan and rising oil prices compounded the problems for the company and resulted in a 200% increase
