Question

As the text (Finance and Accounting for Nonfinancial Managers 2017 (5th edition) Steven A. Finkler Ph. D CPA ISBN-13: 978-0-8080-4690-5) points out, reliable inventory records are very important.

a. Please discuss the inventory process at an organization you are familiar with.

b. Were part-time workers used? If so, how accurate do you feel the inventories were?

c. If you are not familiar with a company’s inventory process discuss how you would do the inventory at a Home Depot store.

Please cite your sources.

Answer 1

a) I am familiar with a local organization dealing in selling perishable products like milk, vegetable, meat, etc. Inventory management used in the company is "First-in , First-out" approach. In this approach oldest stock (first -in) is sold first (first - out). This helps in avoiding spoilage due to the products which couldn't be sold. Generally old products are getting pushed in front shelf and the newer ones are pushed from the back. So the old products doesn't sit in the back for long and doesn't become irrelevant.

b) Yes part-time workers are being used to mange the inventory for the company. I feel the inventories managed by them are not so accurate as part-time workers are paid in the number of item handled by them. In order to maximize their earning they will push the products in front of the shelf quickly and ignore whether older or newer products are being sold. This may lead to spoiling of unsold old products which will increase the storage cost of the company as well.

c) In a home depot store, inventory can be managed by setting par levels for each of the products. As soon as the inventory drops below the par level then order that product immediately. Par levels vary from product to product which can be based on how one product is quickly sold and how long it takes to bring that product. Par levels has to be revisited time and again as it needs to readjusted according to the demand and supply of the product. Products can also be categorized as below when setting products which needs more attention as per their financial impact.

-high value products with low frequency of sales

-moderate value products with moderate frequency of sales

-low value products with high frequency of sales