Merchandising Operations

Imagine you have been hired as a consultant to a merchandising company using the periodic system versus the perpetual system. Prepare a list of advantages and disadvantages for both systems. In an attempt to sway the opinion of the business owner using the periodic system, prepare a convincing argument for switching to the perpetual system. Justify your position.

From the e-Activity, identify the inventory tracking method that is used to record the cost of goods sold and ending inventory. Suggest the key risks inherent in recording inventory in using both methods. Provide a rationale for your response.

Advantages of perpetual inventory system

1. Provides continuous inventory accounts
2. Provides continuous information that is key to maintaining the levels of inventory
3. Provides continuous information about the amount or quantity of goods at hand
4. Provides cost of goods sold without necessarily having to take a periodic inventory count.

Disadvantages of perpetual inventory systems

1. Requires the maintenance of a separate inventory record for each type of goods stocked.
2. Requires more clerical efforts due to the number of transactions necessary to update.

Advantages of periodic inventory system

1. All stock items are reviewed periodically eliminating the likeliness of having obsolete stock
2. Likeliness to get large discounts during the ordering of stock from suppliers
3. Economies from placing orders may be gained.

Disadvantages of periodic inventory system

1. Difficulty in setting appropriate periods for review of stock when demand is not consistent
2. Less responsive to consumption changes.