LIFO versus JIT Assume you are the assistant controller of Thermo Company, which
ID: 2654569 • Letter: L
Question
LIFO versus JIT
Assume you are the assistant controller of Thermo Company, which manufactures and sells hot and cold beverage bottles, food storage, and infant products, among other items. You are in charge of preparing the financial statements and tax returns. One of your colleagues, the assistant controller in charge of working capital management, has just returned from a three-day seminar on Just- In- Time (JIT) inventory. JIT reduces inventory carrying costs by having arrangements with suppliers to deliver inventory just as it is needed for production or sale. Your colleague is excited about implementing JIT, but you are concerned that all factors are not being considered. Your company has been using LIFO for about 25 years.
Prepare a 3-page memo to the controller outlining why you think JIT might be a bad idea for Thermo. Be sure to include the impacts on financial reporting and taxes, as well as any other impacts you foresee. Cite at least two peer-reviewed sources, in addition to the required readings for this module.
Explanation / Answer
Just in time :- There is no doubt that just in time inventory method reduces thge carrying cost but on the same hand it increases the ordering cost as the inventory is ordered at the time of requirement and it will not be a good option to adopt JIT where the demand for the product is uncertain . JIT may also take extra time as first inventory is ordered when the order is received and then the processing is started further in that case many customers must not be willing to wait
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