Jenna Scharmann has been a public accountant for the past 20 years and is now a partner in DSouza Lesynski LLP, a prominent accounting firm based in Saskatoon. The local chamber of commerce asked Jenna to speak at its monthly meeting. Since many members of the chamber are small to mid-sized retailers, Jenna decided to prepare a talk on determining inventory values and inventory cost formulas. It is now Friday afternoon and Jenna has just returned to her office following the presentation to the chamber. She is surprised to see messages from two clients who were at the meeting. The first message is from Sally French, who owns and operates the local Ford dealership. In addition to selling cars, the dealership has a large service department and maintains an extensive inventory of parts and accessories. Sally is concerned about the large amount of parts inventory she maintains at the dealership. Other dealers have moved to a just-in-time approach for much of their parts inventory. They claim it has significantly reduced inventory costs and improved cash flow without hurting client service. Sally wants more information about just-in-time inventory; specifically, the effect of switching to JIT on accounting entries, cost formulas, and cash flow. The second caller is Jason Mount, who manages his familys grocery store. Jason would like to know why his family is using the FIFO approach instead of weighted-average. From Jennas chamber presentation, he learned that the weighted-average formula results in lower income in times of rising prices, and since lower income means lower taxes, he is wondering why Jenna has not previously recommended switching to weighted-average.

Question #1) Determine which inventory cost formula would best suit the needs of each client. Be sure to provide support for your recommendation.

Question #2) Prepare a draft response to Sally that addresses her questions about the use of a just-in-time inventory system and its possible effects on the dealership.

Question #3) Prepare a draft response to Jason regarding his concerns about the use of weighted-average in his business. Do you think that the business should change to this method? Why or why not?