Smith Saxophone Company is nearing the end of its worst year ever. With two weeks until year-end, it appears that net income for the year will have decreased by 25% from last year. Joe Smith, the president and principal stockholder, is distressed with the year’s results. Smith asks you, the financial vice president, to come up with a way to increase the business’s net income.
Inventory quantities are a little higher than normal because sales have been slow during the last few months. Smith uses the LIFO inventory method, and inventory costs have risen dramatically during the latter part of the year.
Complete the memorandum to Joe Smith to explain how the company can increase its net income for the year. Explain your reasoning in detail. Smith is a man of integrity, so your plan must be completely ethical.