Inventory Methods

Scenario A retail company begins operations late in 2000 by purchasing $600,000 of merchandise. There are no sales in 2000. During 2001 additional merchandise of $3,000,000 is purchased. Operating expenses (excluding management bonuses) are $400,000, and sales are $6,000,000. The management compensation agreement provides for incentive bonuses totaling 1% of after-tax income (before bonuses). Taxes are 25%, and accounting a taxable income will be the same. The company is undecided about the selection of the LIFO or FIFO inventory methods. For the year ended 2001, …

…considerations. We cannot look at financial data without taking into account the context. Just as we cannot evaluate management in an efficient manner without taking measures into account that go beyond financial data. References: Arveson, P. (1998). What is the Balanced Scorecard? Retrieved Jan 21, 2005, from The Balanced Scorecard Institute: http://www.balancedscorecard.org/basics/bsc1.html Investopedia, Inc. (2006). Efficient Market Hypothesis - EMH. Retrieved Jan 20, 2006, from Investopedia.com: http://www.investopedia.com/terms/e/efficientmarkethypothesis.asp