An executive in a merchandising company receives an annual bonus equal to 5% of net income. Historically, the company has calculated the cost of goods sold and ending inventory using LIFO and has maintained 30,000 units in inventory for the last 10 years. The executive is recommending the company reduce the number of units in year-end inventory to 1,000. Over the 10-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?