Inventory Control Methods, accounting homework help

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Inventory Control Methods

Discussion 1: Jason Archer is the CEO of JCPenney® (a United States retailer). Because Jason's bonus is based on the company's earnings, he has directed the controller to use FIFO as the inventory costing method. Jason did not tell the controller his real reason for the directive; instead, he stated that he thought FIFO better reflected the actual flow of inventory costs. Please review the following links and company websites then answer the questions.

  1. Is Jason's decision to select FIFO appropriate? Is it ethical? Is Jason wrong if this will help the company and also benefit him too?
  2. What are some of the pitfalls of a company basing a manager’s or CEO’s compensation on the company’s earnings?
  3. Using the links provided for JCPenney and Sears® (a United States retailer), determine the inventory turnover ratio for the companies. What does this ratio tell you about these companies? How do the companies compare? You can reference page 279 in your textbook.

Source: The University Record Online: University of Michigan. Retrieved from http://www.ur.umich.edu/0304/Jan19_04/10.shtml

Source: JCPenney. Retrieved from http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-irHome

Source: Sears Holding Corporation. Retrieved from http://www.searsholdings.com/invest/financial_info.html


Tutor Answer

Mburu
School: Carnegie Mellon University

Running head: INVENTORY CONTROL METHODS

Inventory Control Methods
Student name
Professor
Course
Date

1

INVENTORY CONTROL METHODS

2

Question 1
Jason's decision is inappropriate and unethical since as a manager he has no mandate to
change the accounting policies of the firm. Besides, switching to FIFO method is meant to
favour him in terms of bonus and which is disadvantageous to the investor. When FIFO method
is used, the cost of sales will be lower thus higher profits (Wink, 2011). Since the profits will be
higher, the manager will get higher bonus. While the manager will be enjoying higher bonus, he
will be increasing the tax liability of the company as the higher the profits the higher the tax.
Question 2
The manager will tend to manipulate the accounting policies and procedures for their
o...

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