Howser Ltd.

(Howser) is a Canadian manufacturer of wooden shingles. Howser purchases lumber from saw mills and manufactures the shingles in one of its two factories. The shingles are used in house construction, mainly in the southern and western United States.

Howser is owned by 20 investors, not all of whom are involved in the day-to-day management of the company. The professional management team receives salary plus bonuses based on company performance as compensation. Howser has a large loan outstanding from the bank. The amount of the loan is based on accounts receivable and inventory outstanding on the last day of each calendar month. Howser has usually borrowed the maximum amount allowable under the borrowing agreement. Howser pays surplus cash (cash that isn’t required for operations and is available after paying of debts) out to its shareholders.

Required

Prepare a report to Howser’s management recommending accounting policies for inventory. Your report should fully explain your recommendations.