Inventory management (work should be plagiarism free) Fashion Haven recently ope
ID: 2332998 • Letter: I
Question
Inventory management (work should be plagiarism free)
Fashion Haven recently opened a retail clothing shop in Australia. The owner is considering whether a perpetual or periodic inventory system should be used. The company also has an item of inventory with details below:
Date
Item
Quantity
Unit cost
May
1
Opening balance
21
105
5
Purchase
5
102
7
Purchase
15
97
17
Purchase
35
95
31
Inventory on hand
16
Sales revenue for May
10,800
Requirements: Write a business report (about 600 words) critically addressing the issues below:
Explain the essential differences between perpetual and periodic inventory systems. With the nature of Fashion Haven’s business, which system would you suggest to the owner? Why?
Using a spreadsheet, calculate the Ending Inventory and Cost of Goods Sold for May, using the average cost, LIFO, and FIFO methods. Present your answers in both normal and formula views with rows and column headings.
Taking into account the context of the firm’s operation and the current purchase price, what method would you suggest to the owner, why?
Date
Item
Quantity
Unit cost
May
1
Opening balance
21
105
5
Purchase
5
102
7
Purchase
15
97
17
Purchase
35
95
31
Inventory on hand
16
Sales revenue for May
10,800
Explanation / Answer
Q. Difference between Perpetual and Periodic Inventory System.
Ans: The difference between the periodic and perpetual inventory systems involves the general ledger account Inventory.
In a periodic system the account Inventory will:
In a perpetual system the account Inventory will:
It is possible that a company will use the periodic system in its general ledger and use a different computer system outside of its general ledger to track the flow of goods in and out of inventory.
Q. Which System would you suggest to the Owner of Fashion Haven Business and why?
Ans: According to the Transaction and Fashion Haven's business style of inventory I would suggest them Perpetual Inventory System because this inventory system traces every single movement of inventory, as and when they arise as oppose to Periodic Inventory System where the inventory records are updated at periodic intervals. Since inventory here is purchased and sold on regular basis, recording them on periodical basis is not suggested.
Q.Calculate Ending Inventory and Cost of Goods Sold For May using LIFO, FIFO and Average Cost.
Ans:
Average Cost Method and COGS is NOT CALCULATED as Cost per Unit is not given.
Ending Inventory as per LIFO is 16 units in the closing balance is from the 21 units of the beginning/opening belance.
Ending Inventory as per FIFO is 16 units in closing balance are the one's from the purchases of 35 units on MAY 17.
Q. Taking into account the of the firm’s operation and the current purchase price, what method would you suggest to the owner, why?
Ans:
COst per unit is not given in the question. Therefore, no suggestions given.
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