FIFO or LIFO In the case, the university Store provided plenty of goods and services with various costs. They frequently have their costs, selling prices and discounted prices changed. This process would contain a large amount of work since the Store kept large number of books. Although the Store has planned to record data by establishing a new software system, they used the retail method easing and simplifying inventory tracking. Comparing the FIFO or the LIFO method, the retail method would be the better to value Inventory with two major reasons. One reason is that GAP would accept the report under the retail method.
While applying the FIFO or LIFO method, the Store would calculate historical percentages to estimate ending Inventory cost. However, they would use the "current cost-to-retail" ratios, which are more acceptable and reliable for GAP financial report. The other is that the Store could be easy to record inventory. The Store could record numbers including the total cost and purchase retail value, costs and retail prices, and total sales in a period. Also, the Store sometimes marks up the original sale prices, which should be marked down before calculating ending Inventory.
By acquiring same Information, cost-to-retail percentage in FIFO or LIFO method are able to be calculated with omitting beginning inventory or only using beginning inventory respectively. Causes and Procedures for Inventory Obsolescence The Store realized that they needed to consider the inventory obsolescence problem. They have found the large volume of "inactive" books, which could re-adopt in the next semester or could not be returned to publishers. The major causes of this problem could be divided Into four parts. Firstly. E turnover rate of returns manager was significantly high in the recent years, causing difficulties to clear the unneeded textbooks before the new edition published. If the textbooks became obsolete and unable to be returned to publishers, they would be stored in the bookstore or the warehouse, making losses in the financial report. The first procedure to improve the problem could be to find the reasons of high turnover rate like large workload, high-pressure environment or unexpected salary. Then, the Store should address the problem with different strategies depending on the reasons. Secondly, the Store distributed little employees to work on arranging the inactive textbooks since total employees were insufficient. This problem caused the obsolete books would stored increasingly making financial losses. To solve the problem, the Store could recruit more employees in order to pay more attention on the Inactive textbooks If the Store has ability to hire more. Moreover, the Store tried to actively pay back the used books In order to lower costs. TLS caused the Store would possibly obtain the unneeded books, which professors would stop using next semester.
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These textbooks would be unable to return to the publishers and would become losses for financial reporting. The procedure solving the problem could be firstly asking professors or teachers whether the used textbooks would be continually used in the future. Next, the Store would be able to decide which book should pay back depending on their requirements and recommendations. Last but not least, the would lower sales of textbooks recently. If the Store obtained the same number of a specific textbook with decreasing usage, the books would become inactive causing financial losses.
In order to solve the problem, the Store could establish a survey about the decreasing demands or possible cancellations of the books. After that, they could estimate the future inventory of fewer books with low demands. Inventory Practices Cause Misstatement Risk of Inventory While calculating the inventory value, some practices would possibly increase the risk of misstatement. At first, errors would appear in recording different costs, selling prices and price changes in sale while organizing hundreds of products.
The Store should arrange at least two employees to check the values are correct although they eve already faced the problem of insufficient employees, which would cause individual workload increases. Secondly, the part-time workers with insufficient training and frequent turnover rate would create calculating mistakes. Although heavy reliance of part-time employees could lower the operating cost, it would increase the risk of inventory misstatement. To detect this possible misstatement, the Store should hire more full-time employees or provide a position to monitor the process of switching different part-time employees.
Also, the revisions of college extols were published more frequently, which increase the risk of inventory misstatement. The Store needs to obtain the information about the time the revision would be published in the future and content comparison with old version. Likewise, the textbook demand is hard to determine or estimate since currently students are able to purchase cheaper from different sources like friends or online. The Store can provide some promotion or sale to attract the students. It can obtain small volume of inventory, and then decide to purchase more depending on the demand.
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