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.
- 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?
- What are some of the pitfalls of a company basing a manager’s or CEO’s compensation on the company’s earnings?
- 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