Use of a Perpetual Inventory System

Darrell Keith is starting a new business. He plans to keep a tight control over it. Therefore, he wants to know exactlyhow much gross profit he earns on each unit that he sells. Darrell sets up an elaborate numbering system to identify each item as it is purchased and to match the item with a sales price. Each unit is assigned a number as follows:

0000-000-00-000

a. The first four numbers represent the month and day an item was received.

b. The second set of numbers is the last three numbers of the purchase order that authorized the purchase of the item.

c. The third set of numbers is the two-number department code assigned to different types of products.

d. The last three numbers are a chronological code assigned to units as they are received during a given day.

Required

1. Write a short memo to Darrell explaining the benefits and costs involved in a perpetual inventory system in conjunction with his quest to know exactly how much he will earn on each unit.

2. Comment on Darrell's inventory system assuming that he is selling (a) automobiles or (b) trees, shrubs, and plants.