An executive in a merchandising company receives an annual bonus equal to 5% of net income. Historically, the company has calculated cost of goods sold and ending inventory using LIFO and has maintained 30,000 of units in inventory for the last ten years. The executive is recommending the company reduce the number of units in year-end inventory to 1,000. Over the ten-year period, the cost per unit of inventory has increased from $60 per unit to $110 per unit. Respond to the following in a minimum of 175 words: In what ways would a reduction in inventory help the company? In what ways would the change from LIFO to FIFO help the executive personally? Would you approve the proposal to move from LIFO to FIFO? Why, or why not?
An executive in a merchandising company receives an annual bonus equal to 5% of net income. Historically, the company has calculated cost of goods sold and ending inventory using LIFO and has maintained 30,000 of units in inventory for the last ten years. The executive is recommending the company reduce the number of units in year-end inventory to 1,000. Over the ten-year period, the cost per unit of inventory has increased from $60 per unit to $110 per unit. Respond to the following in a minimum of 175 words: In what ways would a reduction in inventory help the company? In what ways would the change from LIFO to FIFO help the executive personally? Would you approve the proposal to move from LIFO to FIFO? Why, or why not?
Chapter3: Evaluation Of Financial Performance
Section: Chapter Questions
Problem 14P
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An executive in a merchandising company receives an annual bonus equal to 5% of net income. Historically, the company has calculated cost of goods sold and ending inventory using LIFO and has maintained 30,000 of units in inventory for the last ten years. The executive is recommending the company reduce the number of units in year-end inventory to 1,000. Over the ten-year period, the cost per unit of inventory has increased from $60 per unit to $110 per unit.
Respond to the following in a minimum of 175 words:
- In what ways would a reduction in inventory help the company?
- In what ways would the change from LIFO to FIFO help the executive personally?
- Would you approve the proposal to move from LIFO to FIFO? Why, or why not?
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