Retail Inventory-Level Planning consists of retail inventory method (RIM) which is an accounting procedure whose objectives are to maintain a perpetual. It also can book inventory in retail dollars amounts and to maintain records that make it possible to determine the cost value of the inventory at any time without taking a physical inventory. Also known as book inventory system or perpetual book inventory. Retailers also have another important choice to make the stock to sales ratio. The stock to sales ratio is derived directly from the planned inventory to determine monthly additions to stock in the merchandise budget plan.
Retailers generally think of their inventory at retail price levels rather than at cost. Retailers use their initial markups, additional markups, and markdowns, and so forth as percentages of retail. When retailers compare their prices to competitors’, they use retail prices. The problem is that when retailers to design their financial plans, evaluate performance, and prepare financial statements, they need to know the cost value of their inventory. Retailers use physical inventories. This process is time consuming and costly. Retailers take physical inventories once or twice a year.
Many retailers use point of sale terminals that keep track of every item sold its original cost, and its final selling price. The rest of the retailers face a problem of not knowing the cost value of their inventory at one time. These retailers with either computerized or manual systems can use retail inventory method.
Their are five advantages for using RIM over a system of inventory at cost. The does not have to “cost” each time. When retailers have many SKUs, keeping track of each item becomes difficult and expensive. It is easier to determine the value of inventory with the retail prices marked on the merchandise than unmarked or at coded cost prices.
The second advantage for using RIM is that it follows the accepted accounting principal of valuing assets at cost or market value, which is lower. This system lowers the value of inventory when markdowns are taken but does not allow inventory’s value increase with additional markups.
When using RIM, the amounts and percentages of initial markups, markdowns, and shrinkage can be identified. This information can then be compared with historical records or industry norms.
RIM is useful for determining shrinkage. The difference between the book inventory and the physical inventory can be attributed to shrinkage.
ARB43, Ch.4 Par.8 ?A departure from the cost basis of pricing the inventory is required when the utility of the goods is no longer as great as its cost.
In order for Jim Turin & Sons, Inc to have used this method of accounting it would have had to match the cost of the merchandise with the revenue earned from the sale. Using the matching of revenue and cost the company would have had to have kept an actual inventory and maintained records of the costs associated with said inventory. Since the costs are not immediately deducted under the accrual method they are deferred to the year when the merchandise is
In 2012 Macy’s had a gross profit margin and net income margin of 11148, and 1335 respectively. In 2013 Macy’s had a gross profit margin and net income margin of 11206, and 1486 respectively. In 2014 Macy’s had a gross profit margin and net income margin of 11242, and 1526 respectively ("Annual Reports/Fact Book -Macy 's Inc."). Gross profit and net income margin both show steady increases year over year, this data indicates Macy 's is continuing to grow at a sustainable rate. In 2013, Macy’s inventory turnover was 3.15, and decreased to 3.03 in 2014. Number of days sales in inventory in 2013 was 115.84 and 120.28 in 2014 ("Annual Reports/Fact Book -Macy 's Inc."). With the decrease in inventory turnover and conversely an increase in number of days sales in inventory Macy 's is showing a decrease in managing inventory, in other words this excess inventory is decreasing
Average inventory is calculated using the sum of the first quarterly reporting month to the last quarterly reporting month and then dividing this quantity by two (Gibson, C.H., 2013, pg. 239). With this tool we can see if a business is turning over inventory in an adequate industry manner. It is a beneficial to compare with other similar industries. A high score shows that a business is bringing in inventory and getting rid of it quickly (Gibson, C.H., 2013, pg. 239). A low score means that inventory is not turning over as quick as possible. This indicator allows a business to stock up to meet the inventory necessities. In our comparison with Home Depot and Lowe’s we see a major difference in inventory turnover. Lowes leads with 116% and Home Depot at 13%.s a result we see that Home Depot is turning inventory in a great manner that it is possible to increase
Inventories: - Perform inventories in a systematic and thorough manner. Otherwise, undiscovered posting errors and operational gains and losses will be compounded. Inventories correct these mistakes by bringing the stock accounting records into line with the true stock position. Inventories will be conducted in a manner that ensures each item is verified at least tri-annually. Results of inventories will be recorded on the Navy ERP stock records within 3 workdays after completion of the inventory.
Also, please take into consideration how these reports are completed. These reports essentially summarize the cost of production activity with a specific reporting period and is a formalized summary of the four main steps that accounting uses to assign a fixed cost to units that are in and out in the final work-in-progress(WIP) inventory, which is inventory that is partially completed(Kimmel, et.al., 2017). In order for accounting to prepare its balance sheet, it is necessary to utilize these four steps to ensure that the production cost report reflects accurate data on inventory(Accounting Coach, 2017). The steps that were performed in creating this report were as
3. What inventory method does CVS and Walgreens use? Page 295 4.Are there any major fluctuation or difference to comparators, give reasons for the fluctuations or differences using what you know regarding the industry, the economy, and linking what you have read in the management discussion and analysis as well as the Notes to the
... inventory turnover was found to be very low. The low inventory turnover ratio was an indicator of inadequacy, since inventory usually has a rate of return of zero (Inventory Turnover Ratio Interpretation, 2009). It also implied either poor sales or excess inventory. A low turnover rate indicated poor liquidity, convincible overstocking, and obsolescence, but it would have also reflected a planned inventory build-up in the case of material shortages or in anticipation of rapidly rising prices. (Inventory Turnover Ratio Interpretation, 2009) And a rapid and unexplained rise in the number of sales per day in receivables in addition to growing inventories to cover the shortage was noted. The interviewee (Public Accountant) could smell something suspicious which led him for more detailed procedures and proactive investigation at the end of which a fraud was detected.
2) Knowing the selling price of the item. And from the first two pieces of data Bean is then able to calculate the profit margin generated from each individual item. Thus, profit margin = selling price – cost of item also relates to the costs of under stocking. 3) Knowing the liquidation cost of an item to calculate the costs of overstocking. With these calculations, Bean can use these methods mentioned in Q1 to decide what the final amount of items to stock are. Furthermore, Bean will need to compare the costs associated with under stocking relative to the sum of under stocking plus overstocking inventory. However, the costs of under stocking should not only include short terms losses, i.e. loss of sale for that item at that time, but also the loss of future business due to customer dissatisfaction. Bean must also consider that if a particular item is not in stock that entire purchase order may be cancelled. Costs of overstocking should include costs to hold inventory and consider that these might change if the salvage value of a product leftover is depended upon the number of units remaining at the end of the season. If there is a lot of product leftover, then the liquidation value might decrease and items will be transferred to next
The pros of using ABC is the capacity to estimate the cost of services and individual products. By transferring overhead costs to individual units of products or services, ABC helps identify inefficient or non-profitable products or activities that eat into the profitability of efficient processes or highly profitable products (Nayab, 2011). This will help the company to determine whether to implement processes for improvement or outsource those processes. ABC highlights non-remunerative distribution channels allowing the management to adopt alternative marketing strategies or close down the channel for a more pro...
"Both methods estimate overhead costs related to production and then assign these costs to products based on a cost-driver rate. The differences are in the accuracy and complexity of the two methods" (1) , Now we will discuss why ABC can result in more reliable products costs than conventional labor based product costing system . In recent years, the nature of industrial production has fundamentally altered; we will discuss their characteristics. First we have machine production and capital intensive, Now machines are the main tool and at the heart of production; labors maintain machines and supervise them, and machines are the ones that dictates the pace and rate of production. The second characteristic is high level of overheads relative to direct cost; in modern businesses they tend to use overheads in different ways for example: some products need engineering time and some products require machine time so that products will use overheads differently. The third characteristic is highly competitive international market, transportation including fast freight and relatively cheap; one of the advantages is the use of internet ensures that customers can easily and quickly reach and find products and also cheaply, this environment is highly competitive so companies need to know accurately their range of prices in order to use this information to gain competitive advantage over other
In addition, at the time, the economy was doing great, therefore, using the push system to stock pile inventory was acceptable. However, during the dot-com bust of the 2000’s, its sales and the demand for its products greatly decreased. Unfortunately, during this time, Cisco discovered that it possessed an abundance of inventory, and, wrote off more than $1 billion in inventory. Consequently, the company learned that acquiring inventory in anticipation of market demand, and not factoring in the human element of its business increased its risks of failure. Obviously, Cisco wanted to meet its customer’s demands, however, the problem was that it held more inventory than what the customers were demanding. Nevertheless, afterwards, it knew that it needed to adopt a new, more efficient approach to inventory. Therefore, Cisco had to reevaluate its supply chain system and seek input from IT, customers, suppliers, and finance. Further, by including input from these sources, Cisco adopted the more efficient pull system. The pull system, is dependent upon producing smaller repeating orders. Rather than the push system, which relies on larger less repeating orders. Effective inventory management, when administered correctly, can reduce and keep the inventory to a more desired level. In addition, Cisco discovered that inventory management can reduce inventory levels, enhance cash flow and reduce overall
Inventory management is a method through which a business handles tangible resources and materials to ensure availability of resources for use. It is a collection of interdisciplinary processes including a full circle of the demand forecasting, supply chain management, inventory control and reverse logistics. Inventory management is the optimization of inventories of manufactured goods, work in progress, and raw materials. According to Doucette (2001) inventory management can be challenging at times; however, the need for effective inventory management is largely seen more as a necessity than a mere trend when customer satisfaction and service have become a prime reason for a business to stand apart from its competition. For example, Wal-Mart’s inventory management is one of the biggest contributors to the success of the company; effective and efficient inventory management is of critical importance.
...out the complexity of real operations and accurately assigning costs to products in a way that is in line with the method in which the activities are consumed. As a result, excess capacity costs are not directly assigned to products. Product costs are therefore not distorted by automatically burdening them with the cost of unused capacity. This helps the management take action based on the unused resource capacity. Furthermore, it can scale easily to handle large number of transactions while still delivering fast processing times and real-time reporting.
Of greater importance, job-order costing system needs to accumulate three types of information which include direct materials, direct labor, and overhead. These factors are highly important essentially because of the significant variations in the products produced. Hence, each product or batch has a job identification number and costs are accumulated by a job number. All the more, job-order costing systems requires detailed accounting information and thus the total cost of all jobs is accumulated in one work-in process inventory control account; details of the cost materials, labor, and overhead for each job are kept in subsidiary records called job-order cost sheets (Edmonds, Tsay, & Olds,