ACME makes shock absorbers for the Mercedes manufacturing facility and for a few other customers. Two days before the auditors arrived to count ending inventory, the plant manager told the warehouse employees to load four tractor trailers with shock absorbers, lock them and park the trailers on the back lot. After giving those instructions she said: “If anyone mentions this to the auditors, I will find out who you are and fire you!” So, no one said a word.
Other facts that you should know:
- Mercedes uses Just-in-Time for its inventory system.
- ACME’s terms for shipping and billing are FOB shipping point, prepaid and add.
Respond to the following:
- Why did the manager order employees to hide the inventory?
- How does what she did affect the financial statements?
- What should the plant accountant do, if anything, about this situation?