Wilkens Company uses the average-cost method for inventory costing. The company is having a very good year. In an effort to reduce income in the current year, company president Lenny Wilkens tells the plant accountant to take the unusual step of recommending to the purchasing department to make a large purchase of inventory at year-end. The price of the item to be purchased has nearly doubled during the year, and the item represents a major portion of inventory value.
Instructions
Answer the following questions.
a. Identify the major stakeholders. If the plant accountant recommends the purchase, what are the consequences?
b. If Wilkens Company were using the FIFO method of inventory costing, would Lenny Wilkens give the same order? Why or why not?