1. Inventory Control

8/7/2019 1. Inventory Control

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Inventory ControlInventory Control


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InventoryInventory

All the stock that a business hasAll the stock that a business has

on hand.on hand.


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Types of InventoryTypes of Inventory

MaterialsMaterials

FinishedFinished--productsproducts

MerchandiseMerchandise


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ReasonsReasons forfor

Counting InventoryCounting Inventory To provide management with financialTo provide management with financialinformation needed to prepare incomeinformation needed to prepare incometax returns.tax returns.

To provide information for inventoryTo provide information for inventorycontrol.control.

To identify certain types of inventoryTo identify certain types of inventory

problems.problems. To provide the business withTo provide the business withinformation to use in purchasing goods.information to use in purchasing goods.


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Methods for CountingMethods for Counting

InventoryInventoryCount all the inventory at oneCount all the inventory at one

time, either once a year or moretime, either once a year or more

often.often.

Count part of the inventory,Count part of the inventory,

usually at regular intervals, on ausually at regular intervals, on arotating basis.rotating basis.

Use a combination of the twoUse a combination of the two

approaches.approaches.


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Ways Businesses canWays Businesses can

ensure Accuracyensure Accuracy By training and supervising staffBy training and supervising staff By emphasizing importance of accurateBy emphasizing importance of accuratecountscounts

By making sure that inventory forms areBy making sure that inventory forms areproperly preparedproperly prepared

By sorting and pricing goods before aBy sorting and pricing goods before a

complete inventorycomplete inventory By verifying accuracyBy verifying accuracy

Spot checksSpot checks

Two countsTwo counts

Sectional recountsSectional recounts


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Who Counts Inventory?Who Counts Inventory?

Employees of an outsideEmployees of an outside

companycompany

Company employeesCompany employees

Both company and outsideBoth company and outside

employeesemployees


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Responsibilities ofResponsibilities of

Inventory TakersInventory Takers To learn the business s proce uresTo learn the businessd s procedures

To obtain forms or equipmentTo obtain forms or equipment To identify appropriate locationTo identify appropriate location

To count and/or record goodsTo count and/or record goods

To return forms and/or equipmentTo return forms and/or equipment


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When is InventoryWhen is Inventory

Counted?Counted?When business is closedWhen business is closed

After business hoursAfter business hours

While business is openWhile business is open


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Basic Types ofBasic Types of

Inventory Control SystemsInventory Control Systems

Unit ControlUnit Control

Dollar ControlDollar Control


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What can be learned fromWhat can be learned from

Unit Control Information?Unit Control Information? Quantities of stock on hand or on orderQuantities of stock on hand or on order

The speed with which items of stockThe speed with which items of stock

are movingare moving Merchandise information (sizes, brands,Merchandise information (sizes, brands,

color, etc.)color, etc.)

Stock returned by customersStock returned by customers Stock that has been marked up orStock that has been marked up or

downdown


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What can be learned fromWhat can be learned from

Dollar Inventory Control?Dollar Inventory Control? Amount of capital the business hasAmount of capital the business has

invested in inventoryinvested in inventory

Amount of income the business willAmount of income the business willreceive if the inventory is soldreceive if the inventory is sold

Profits or losses from the sales ofProfits or losses from the sales of

inventoryinventory

Capital available to be additional inventoryCapital available to be additional inventory

Past sales totalsPast sales totals


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Types or Unit and DollarTypes or Unit and Dollar

Control SystemsControl Systems PerpetualPerpetual

Updates inventoryUpdates inventory

information on ainformation on a

continuous basiscontinuous basis

PeriodicPeriodic

Counts inventory atCounts inventory atcertain times of thecertain times of the

yearyear


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Advantages and disadvantages ofAdvantages and disadvantages of

Inventory Control systemsInventory Control systemsTypeType AdvantagesAdvantages DisadvantagesDisadvantages

UnitUnit Provides detailed inventoryProvides detailed inventoryinformationinformation

Indicates how quicklyIndicates how quickly

merchandise is soldmerchandise is sold

ExpensiveExpensive

Only as good as people whoOnly as good as people whorun itrun it

Slowness and speedSlowness and speed

Can not tell about consumerCan not tell about consumer

demanddemand

DollarDollar Helps business manage itsHelps business manage itsfinancial investmentfinancial investment

Shows business how muchShows business how muchmoney it has to spend onmoney it has to spend onadditional merchandiseadditional merchandise

Is useful in forecasting salesIs useful in forecasting sales

Does not show the businessDoes not show the business

what items are out of stockwhat items are out of stock

Does not show which inventoryDoes not show which inventoryis selling at a slow rateis selling at a slow rate

Does not show how individualDoes not show how individual

items are performingitems are performing


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Advantages and Disadvantages ofAdvantages and Disadvantages of

Inventory Control SystemsInventory Control SystemsTypeType AdvantagesAdvantages DisadvantagesDisadvantages

PerpetualPerpetual Gives the business continuousGives the business continuousfeedback on the value and/orfeedback on the value and/oramount of inventoryamount of inventory

Helps to maintain a balancedHelps to maintain a balancedstockstock

Helps to ensure that there willHelps to ensure that there will

be enough stock to meetbe enough stock to meetcustomersd needscustomersd needs

Enables business to prepareEnables business to prepare

financial statements at anyfinancial statements at anytimetime

Helps business to determine theHelps business to determine the

approximate value of itsapproximate value of itsinventory at any time withoutinventory at any time without

doing an actual countdoing an actual count

Not as accurate as actualNot as accurate as actual

countcount

ExpensiveExpensive


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Advantages and Disadvantages ofAdvantages and Disadvantages of

Inventory Control SystemsInventory Control SystemsTypeType AdvantagesAdvantages DisadvantagesDisadvantages

PeriodicPeriodic Provides accurate dataProvides accurate dataEnables business to calculateEnables business to calculate

profits earned during aprofits earned during a

particular periodparticular period

Brief accuracyBrief accuracy

May require business toMay require business to

closeclose

ExpensiveExpensive

Time consumingTime consuming

Documents

1. Inventory Control