Problem:
You are the accountant for the South-Western Division of HiValue Grocery Stores. Late in December, Kelly Cholak, the CEO of the Division, stops by your office and says, "I have a couple of questions. I recently received a report from the head office on the first 11 months of the year. We are not doing as well as we budgeted, and they are not happy with the gross profit we have earned. But the good news is that I just got off the phone with a big supplier who has excess inventory and could sell us enough of their products to last us three months. They have offered us a great price-lower than we have paid in a couple of years. Then I remembered that you use that funny LIFO retail inventory method where you play with such confusing numbers. Will the purchase reduce our retail ratio, or whatever you call it, so that our inventory is lower and cost of goods sold higher, because that would only make us look worse? Alternatively, I thought that we could delay this purchase until after January 1, and we might be able to have one of those LIFO liquid profits and make ourselves look good for the year's results. Give these issues some thought and let's have a drink after work today to discuss them."