Discussion about Inventory Control Methods

Jason Archer is the CEO of JC Penney® (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.

Answer the following questions:

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? Determine the inventory turnover ratio for the companies. What does this ratio tell you about these companies? How do the companies compare?

Calculate the number of days in inventory for the JC Penney and Pears. What does this ratio tell you about these companies? How do the companies compare?

Analyze qualitative data in decision making