Financial accounting 16th Edition by Jan Williams,Susan Haka,Mark Bettner ,Joseph Carcello

تمرين 35

Managing Profitability

You are a stiff accountant for Pearce, Pearce, and Smith, CPAs, and have worked for several years on the audit of a major client of the firm, Flexcom, Inc.lexcom sells its products in a highly competi­tive market and relies heavily on the careful management of inventory because of the unique nature of the products sold and the importance of minimizing the company's investment in inventory.lexcom sells cellular phones, personal handheld computers, and other communications devices that are particularly sensitive to changes in consumer demands and changes in technology, which are both frequent and significant in terms of their impact on the attractiveness of Flexcom's products to buyers.
In the course of your work, you have noticed several trends related to inventory that interest you and that have caused you to explore further the underlying details.pecifically, you have determined the following:
• Despité sluggish sales volume, the company's net income has steadily increased for each of the last three years.
• Inventory has been increasing at a higher-than-normal rate;
• The allowance to reduce inventory for obsolescence has dramatically declined during the last three years, going from nearly 10 percent of inventory three years ago to approximately 2 percent at the end of the most recent year.