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Bookstore Case

In: Business and Management

Submitted By xcyztc
Words 1002
Pages 5
Introduction
Currently the University Bookstore is facing an obsolescence of its unsold textbooks in the warehouse. This memo is trying to find the inventory estimation method, the major causes of loss, and suggestions to improve bookstore’s internal control.
Retail Method/Cost-To-Retail Ratio Retail method and estimation method are the two ways to estimate inventory. For the University Bookstore and other retailers, retail method is the better choice. First, the retail method is easier to use. Because of the seasonal sales period and a wide variety of products with different costs, it is complicated for retailers to record every product’s costs, prices and sales. The retail method allows retailers to make physical counts in summer break when the bookstore is not busy. Also, retailers just need to record the retail price of inventory instead of recording cost, retail prices, and total sales. Second, by relying on the current cost-to-retail ratio rather than historical cost, the retail method is acceptable by GAAP. For retail method, cost-to-retail ratio is one of the most important information for retailers to estimate inventory. Cost-to-retail ratio for new and used books can be calculated by using the following formula: Cost of goods available for sale/ (Retail price of goods available for sale + Net markups). The cost-to-retail ratio for new books is 0.7297, and for used books is 0.5813. Then the reported ending inventory on June 10, 2010 is $707,901 for new books, and is $594,399 for used book.
Inventory Practices The Overestimated of students’ demands and Inventory physical flow are two major inventory practices causing the inventory misstatements and losses. The University Bookstore is in a rapidly changing market, where the college textbooks are expensive, and the edition changes quickly. According to a study by GAO, the revision cycle of…...

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