James Television Inc. (JTI) is a privately owned television wholesaler located in Yellowknife that specializes in selling high-end Japanese televisions to retailers. It has been in business for 10 years and has been recording increasing profits for the last five years. Its inventory information for the quarter ending March 31, 2013, was as follows:
Beginning Inventory, January 1, 2013: 10 units @ $400/unit
January 20, 2013: Purchased 20 units @ $500/unit
February 12, 2013: Sold 10 units @ $700/unit
March 1, 2013: Purchased 30 units @ $550/unit
March 28, 2013: Sold 25 units @ $700/unit
Ending Inventory, March 31, 2013: 25 units @ $550/unit
JTI accounts for its inventory using the perpetual system and it uses FIFO as its costing method. The company recorded revenues of $24,500 and COGS of $16,750, resulting in a gross profit of $7,750 for the quarter ending March 31, 2013. However, the cost of the product has been rising because of currency appreciation of the yen.

JTI is considering introducing lower-cost televisions as another line of its products. In the past year, the company consulted with an external company, Global Manufacturing Inc., for the possibility of importing lower-cost Chinese televisions. Global Manufacturing Inc. specializes in the manufacturing of televisions in China, and it operates as an orderto-manufacture company. Customers of Global Manufacturing Inc. can order products to their specifications and product price is determined based on the specifications of the product and the production volume. In a sense, the customers of Global Manufacturing Inc. are themselves the manufacturers of the products. Based on JTI’s specifi cations and order size, Global Manufacturing Inc. submitted the following financial information to JTI:
Costs for the manufacturing of 20 units:

• Raw Materials: $100/unit
• Labour: $10/hour, 15 hours/unit
• Variable Overhead: $50/unit
• Fixed Overhead: $2,000/month

JTI is currently considering whether to continue buying all its televisions from the Japanese manufacturers or to make part of its purchases from Global Manufacturing Inc. If the company imports the 20 units from Global Manufacturing Inc., it is expected that the company would reduce the order of the high-end Japanese televisions by 10–15 units. The company is expecting to continue to sell the Japanese televisions at $700 per unit and the new televisions from Global Manufacturing Inc. would be introduced at $500 per unit.

Required:
a. Suppose JTI chooses to purchase 20 televisions from Global Manufacturing Inc. Would you advise the company to use the variable costing or the absorption costing method to account for inventory expenses?
b. Suppose JTI chooses to continue purchasing all its televisions from the Japanese manufacturers. Is JTI using the optimal inventory system (i.e., perpetual system) and costing method (i.e., FIFO) to account for its inventory?

c. Suppose you are the manager at JTI. Would you recommend the company continue buying all its televisions from the Japanese manufacturers, or should the company diversify into the new product line? Use both financial and non-financial information to support your argument.