You are in charge of preparing the financial statements and tax returns

You are in charge of preparing the financial statements and tax returns

LIFO vs 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 three-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. Your memo should be formatted according to the CSU-Global Guide to Writing and APA Requirements. Cite at least two peer-reviewed sources, in addition to the required readings for this module.

Solution preview

The company has been using the last in, first out (LIFO) method of managing the inventory. This method is based on the assumption that the last items that enter the inventory will be the first one to be sold. Under this method, Thermo has been benefitting in many ways. Firstly, the method can be used to compare the recent costs…………………

APA

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