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Ethics of building inventory KG Products, Inc., is a manufacturer of mobile devices. Richard is the plant manager at KG's Orrville, Ohio, plant. The Orrville
Ethics of building inventory KG Products, Inc., is a manufacturer of mobile devices. Richard is the plant manager at KG's Orrville, Ohio, plant. The Orrville plant manufactures a smartphone, the Zoom, which has sold e past six months. Richard is being considered for promotion to manager of the entire West Coast division of KG Products. Penny is an accounting supervisor at KG Products and is a good friend of Richard's. Richard and Penny are having lunch in the company cafeteria. There are about six weeks left in the current fiscal year. Richard is concerned that his plant will be showing a loss rather than the healthy profit he had projected for the year. The reason for the shortfall is that demand has radically declined for the Zoom smartphone currently manufactured by Richard's plant. New smartphones with more features have been brought to market by KG's competitors. Engineers at KG are currently working on an updated model of the Zoom, but it will not be ready for production in Richard's plant for another five months. If Richard's plant shows a loss this year, Richard wil year. is chance of promotion to the West Coast manager will be greatly reduced. Penny thinks about Richard's situation. She then shares with him a strategy that he can use to help increase his profits. She explains that under absorption costing, the more units in ending inventory, the more costs can be deferred. Using her tablet, she makes up a quick example in Excel to show him how he can turn his situation around and show operating income for the year. Penny's first spreadsheet assumes that five units are produced and sold in this hypothetical situation
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