Jenna Scharmann has been a public accountant for the past 20 years and is now a partner in D’Souza Lesynski LLP, a prominent accounting form based in Saskatoon, Saskatchewan. 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.
Required:
a. Determine which inventory cost formula would best suit the needs of each client. Be sure to provide support for your recommendation.
b. 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.
c. 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?