(Recommending inventory accounting policies, LO 1, 2, 3, 4) 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, all of whom are not involved in the day-to-day management of the company. The professional management team that manages the company 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 usually has borrowed the maximum amount allowable under the borrowing agreement with the bank. Howser pays surplus cash (cash that is not required for operations and that 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.