The suggestion of the accountant makes sense to some extent but it doesn’t either depending on what perceptive you look things at from. The situation of the company is that it’s losing out in making sales/conversions and failing behind from their target. In a very negative note, considering that the suggestion of the accountant is taken into consideration and the production is amplified despite the fall in demand, it will certainly help bring down the development cost of the product and produce more products at the same overall price point (Chenhall, 1996). As we can see companies producing goods in mass can manufacture them at huge numbers compared to ones crafting one at a time and is thus a lot of cost saving as well. But what if those produced goods aren’t wanted at all by the customer? What to do next? With the maximum budget spent in producing new goods rather than selling the current inventory would lower the cash that the business has and thus have to depend on further sales or injection of funds from other sources to fund any other product or product exposures. It will create more desperation to clear the inventory and thus eventually with the demands of the goods on a low number force the company to lower the price. That goes around the same recommendation as suggested by the marketing department member and doesn’t make much sense.
On the bright note, on a shorter term, the business can sustain in the market and I (as in the question) can save the job as well if the suggestion is taken into account from the accountant. In that regard, it does make sense. When the sales is low, it’s obvious that the financial statement would show a lesser profit. However, with accountant suggestion, more products can be produced at a reduced price point to show more of inventory. Inventory does fall under the assets side of the statement and thus helps the business show a bigger image to the wider mass. With the production cost being low, the business can give a slight discount as well or either sale on the same price point to generate more profit from a single sell than they would normally without compromising on the quality (Bijvank & Vis, 2011). It’ll have a positive impact on the financial statements.
Analyzing both the sides of the equation, for the business to sustain, it’s good to go by the suggestion. However, if anyone analyzes the trend, look at the number and it comes out to a wider mass, it’ll send even more of a negative vibe than it would normally do. Sending a wave so big that would have a negative impact on the valuation of stocks than on normal case. It would also mean that the business shows a false, fabricated report to show profit which may not be taken very well by people. A report points out that the business with larger inventory would show slower sales pace while the one with lesser has a quicker sales (Ha, 1997). It only creates false expectations and a good position of the company generally with a higher valuation which may also be considered ethically wrong in some cases and may cause legal action. So, I think even if the suggestion from the accountant makes sense, it’s still a bit off from being good to put it into practicality.
References
Bijvank, M., & Vis, I. (2011). Lost-sales inventory theory: A review. European Journal Of Operational Research , 215 (1), 1-13.
Chenhall, R. (1996). Strategies of manufacturing flexibility, manufacturing performance measures and organizational performance: an empirical investigation. Integrated Manufacturing Systems , 7 (5), 25-32.
Ha, A. (1997). Inventory Rationing in a Make-to-Stock Production System with Several Demand Classes and Lost Sales. Management Science , 43 (8), 1093-1103.
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The suggestion of the accountant makes sense to some extent but it doesn’t either depending on what perceptive you look things at from. The situation of the company is that it’s losing out in making sales/conversions and failing behind from their target. In a very negative note, considering that the suggestion of the accountant is taken into consideration and the production is amplified despite the fall in demand, it will certainly help bring down the development cost of the product and produce more products at the same overall price point (Chenhall, 1996). As we can see companies producing goods in mass can manufacture them at huge numbers compared to ones crafting one at a time and is thus a lot of cost saving as well. But what if those produced goods aren’t wanted at all by the customer? What to do next? With the maximum budget spent in producing new goods rather than selling the current inventory would lower the cash that the business has and thus have to depend on further sales or injection of funds from other sources to fund any other product or product exposures. It will create more desperation to clear the inventory and thus eventually with the demands of the goods on a low number force the company to lower the price. That goes around the same recommendation as suggested by the marketing department member and doesn’t make much sense.
On the bright note, on a shorter term, the business can sustain in the market and I (as in the question) can save the job as well if the suggestion is taken into account from the accountant. In that regard, it does make sense. When the sales is low, it’s obvious that the financial statement would show a lesser profit. However, with accountant suggestion, more products can be produced at a reduced price point to show more of inventory. Inventory does fall under the assets side of the statement and thus helps the business show a bigger image to the wider mass. With the production cost being low, the business can give a slight discount as well or either sale on the same price point to generate more profit from a single sell than they would normally without compromising on the quality (Bijvank & Vis, 2011). It’ll have a positive impact on the financial statements.
Analyzing both the sides of the equation, for the business to sustain, it’s good to go by the suggestion. However, if anyone analyzes the trend, look at the number and it comes out to a wider mass, it’ll send even more of a negative vibe than it would normally do. Sending a wave so big that would have a negative impact on the valuation of stocks than on normal case. It would also mean that the business shows a false, fabricated report to show profit which may not be taken very well by people. A report points out that the business with larger inventory would show slower sales pace while the one with lesser has a quicker sales (Ha, 1997). It only creates false expectations and a good position of the company generally with a higher valuation which may also be considered ethically wrong in some cases and may cause legal action. So, I think even if the suggestion from the accountant makes sense, it’s still a bit off from being good to put it into practicality.
References
Bijvank, M., & Vis, I. (2011). Lost-sales inventory theory: A review. European Journal Of Operational Research , 215 (1), 1-13.
Chenhall, R. (1996). Strategies of manufacturing flexibility, manufacturing performance measures and organizational performance: an empirical investigation. Integrated Manufacturing Systems , 7 (5), 25-32.
Ha, A. (1997). Inventory Rationing in a Make-to-Stock Production System with Several Demand Classes and Lost Sales. Management Science , 43 (8), 1093-1103.