Question

What is your opinion on this statement in terms of the objectives of a good equipment inventory control system?

Our textbook states that inventory controls should ensure that quantities received are accurately recorded, accounted for until used, stored in an accessible manner, and kept safe from loss due to theft, damage and deterioration. Effective inventory control requires cost-effective receiving, storing, and accounting systems. It also requires periodic physical counts of inventories, comparison of the physical counts with perpetual inventory records and tracking down the causes of disparities between the two. (Government Performance Audit in Action 2014, 4th edition, Ives, Hancox)

Objectives of a Good Equipment Inventory Control System

My first job out of college was as a cost accountant for a Caterpillar dealership, so I will consider the above related to equipment for that entity. Specifically, the equipment such an entity sales or rents to customers.

The first objective of a good system would be for the entity to know the equipment that it has on-hand for each category, sale and rent. Records would need to provide the value and location, so that staff could provide accurate information to customers and keep staff from renting equipment that is meant for sale or vice versa to ensure the entity has equipment on hand to meet customer's needs. Without the proper equipment on hand, the company could lose income.

The heavy equipment isn't easily subject to deterioration. However, it costs thousands or even hundreds of thousands, so it is important that the system accurately accounts for the equipment. Specifically, the correct value and installed equipment which could be valuable must be input upon receipt, there needs to be a way to track the equipment in case of theft, and there should be controls over who can remove equipment from inventory.

Another objective would be for the system to divide the equipment between the different locations. Past rental and sales demand should be used to make this determination. Some locations could have a higher rental business than sales, so the dealership would want to have more of that type equipment at that location.

Another objective would be for the system to help management keep track of inventory turnover by item and location, so that the system or staff can determine when equipment should be purchased or moved between locations. With the large equipment such as this, an annual inventory would be sufficient unless problems are found during the year.

Answer 1

Introduction :

Whether the objective of a Good Equipment Inventory Control System is satisfies the objectives of inventory control as specified in text book like, inventory control is ensure that quantities received are accurately recorded, accounted for until used, stored in an accessible manner, and kept safe from loss due to theft, damage and deterioration. Effective inventory control requires cost-effective receiving, storing, and accounting systems. It also requires periodic physical counts of inventories, comparison of the physical counts with perpetual inventory records and tracking down the causes of disparities between the two.

Analysis :

Caterpillar dealership is an entity it sale or rent the equipment to the customers. Caterpillar dealership follows the "Good Equipment Inventory Control System" has 3 objectives there are analysed individually as seen below,

First Objective is about to record the each category of equipment are in hand, sale or rent at each location including its value, that means, statement shows that before we control the inventory we need to know- at present what types of units are available in our hand and its quantity and how many were sold or rent. And what is the value of them. This will creates a proper command on the equipment of entity to control.

And also the objective concentrate on the deterioration of heavy equipment, because its cost is high but quantity is less. These equipment is easily subject to deterioration, since those are valued and recorded at 100% accurately.

Therefore, the first objective of good equipment inventory control system is follows the general inventory control as specified in your text book.

Second Objective and third objective is about identifies and track the demand of each category of equipment of sale or rent in each location on the base of past experiance, this will reduces the unwanted heavy investment on inventory to store without requirement. That is this object is provide periodic physical counts of inventories, comparison of the physical counts with perpetual inventory records and tracking down the causes of disparities between the two, what text books shows about inventory control.

Opinion :

The statement in terms of the objectives of a good equipment inventory control system is following correct inventory controls as the other general inventory control system specifies about the keep the account accurate, effectively and flaw less and keep the inventory safe from theft, deterioration or damage. And periodical verification and compare actual and recorded data and find the reasons for the changes if any changes happened between two.