Chapter 11

http://www.canada.com/vancouversun/news/editorial/story.html?id=712db714-b636-4563-b78f-ced1b034c46a&p=1

Summary

The article that I read was written by David Suzuki and Nancy Olewiler commenting on the government cutting taxes on diesel fuel. Diesel is used primarily in the trucking industry the recent price increases in diesel have been reducing margins for truckers in an industry with small margins to start with. Suzuki and Olewiler call the government plans to reduce the tax of diesel as a band aid solution. Their concern is that indeed truckers would have reduced fuel costs in the short term which would save a number of possible bankruptcies in the industry.The fear is that in the long term, the number of trucks on the road would increase along with greenhouse gas emissions. Suzuki, Olewiler and the Canadian Trucker's Association (CTA) support a program that would improve the fuel efficiency of trucks at an annual cost of $56m opposed to a $600m reduction in tax revenue from the proposed tax cut.
Connection
The connection between the article and the information in the text is COGS. In particular, the Freight-in figure used to calculate COGS. In this case, a merchandising business that has a high inventory turnover would likely be faced with higher delivery costs (Freight-In) in line with the increase in costs that truckers are facing due to higher diesel prices. It is a likely conclusion that the Gross Profit and net earnings of the merchandise business would decrease as a result.

Reflection
The article reinforces the idea that an accountant needs to have a knowledge base outside of just accounting and the importance of keeping up-to-date with events happening in other industries. If a merchandising business is faced with increased transportation costs, it can do two things - absorb the cost or pass the price increase to customers. If the business chooses the former, the profit margins will be reduced. If the business chooses the latter, it would likely face a decrease in demand (depending how essential that good is) for its products reducing sales. It is the classic catch-22 for business...