Riondel Inc. is a new company that assembles laptop computers from parts bought from manufacturers around the world. The company makes three different models; except for the computing power and some of the features, all are identical. Riondel keeps its prices as low as pos sible by continually searching for the lowest cost parts that meet its quality requirements (so the parts that go into each computer change regularly). As a result, the cost of the computers is constantly changing. In addition to the cost of parts, labour and overhead are incurred to build the computers.
Riondel is owned by five friends who graduated from the same university with IT and business degrees. All five are involved in the management of the company and they are all on the board of directors. The company is financed mainly by the equity contributions of the owners. It also has a bank loan, which is personally guaranteed by the five owners. Riondel's first year is coming to an end and the owners are satisfied that it has performed as well as or better than expected. They are considering expanding operations but cash may be a problem.

Required:
Prepare a report to Riondel's management recommending accounting policies for inventory. Your report should fully explain your recommendations.