retail inventory concepts and calculations

8/13/2019 Retail Inventory Concepts and Calculations

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Retail inventory concepts and

calculations

Presented by:

Sanghamitra KalitaCHE13MM14


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Retail inventory control systems

It is an accounting procedure for estimating thevalue of a stores merchandise and maintenance of

stock levels in relation to changing customerdemands.

It helps the buyer to keep track of the amount ofinventory in the store

Gives inventory information while calculating howmuch money is available for purchasing additionalmerchandise


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Helps to provide information needed to take

markdowns by identifying slow selling

merchandise.

Best selling products can be identified so that

reorders can be placed to increase total sales.

Merchandise shrinkage can be identified


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There are 2 types of inventory control systems:

Perpetual

Periodic

RetailInventory

control system

perpetual

manual computerized

periodic

manual


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Perpetual control system

It is used to record business transactions such assales , purchases, returns and transferscontinuously

Stock levels can be calculated at any point of

time. Stores using perpetual control systems do not

need to take actual count of their stock

There are 2 types of perpetual control systems:Manual

Computerized


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Manual:

Maintaining perpetual inventory by manuallyrecording transactions on inventory controlforms.

They are updated as transactions occur on a dailyor weekly basis

They are slow

The data could be incorrect sometimes as it isentered manually


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Computerized

Merchandise information is automatically

collected and processed for every transactionoccurring at point of sale

Provides up to date sales information andinventory data

Has more speed, accuracy and efficiency ofrecordkeeping

This system requires that each item be coded

by UPC(universal product code) The code is read by a scanner and the

information is updated in the inventory record


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Periodic control system

They are used by retailers taking physical inventory onregular basis

Involves actual counting and recording of informationon merchandise at hand at a specified time.

It is done to prepare a firms financial statements andcomparing physical inventory records with store recordto analyze the shrinkage of the stock.

Before taking physical inventory merchandise needs to

be grouped by categories. The inventory record sheet should have product

information like product description, quantity, price,style, color etc.


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Retail inventory concepts

1. Book inventory or perpetual inventory:

A running total and record of the retail value of

merchandise in the store including all movement

of merchandise in and out of the store

2. Overage:

retail dollar difference between the book

inventory (numerical/ statistical count) andphysical inventory indicates that there is more

merchandise on hand than the book indicates


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3. Physical inventory:

The retail value of all goods physically counted in thestore at a given point of time

4. Shortage:

Retail dollar difference between the book inventory(numerical/ statistical count) and physical inventoryindicates that there is more merchandise on hand thanis actually fund when physical inventory count iscompleted

5. Retail inventory method:

An accounting method used by retailers that assessesthe retail value of merchandise in stock and allows todetermine the cost value.


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Calculations:

Book inventory:

STEP 1: determine the opening amount of inventory at hand.

The physical inventory count completed at the beginning andend of each accounting period acts as opening book

inventory.

Formula:

Book inventory at retail = Opening physical inventory +

Additional(in retail value) - deductions(in retail value)

Book inventory at cost = Book inventory at retail X (100%-Markup%)


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To Calculate the closing book inventory at retail for the following:

STEP 1. Additions to Retail Value = Net Purchases + Markdown Cancellations= 48, 800 + 780= 49,580

STEP 2. Deductions to Retail Value = Net Sales + Markdowns + EmployeeDiscounts

= 43,000 + 5, 500 + 270= 48,770STEP 3. Book Inventory at Retail = Opening Physical Inventory + Additions

Deductions= 47200 + 49, 580 48, 770= 48,010

Hence, Book Inventory at Retail = $ 48,010

Opening physical inventory $47,200

Net Sales $43,000

Net Purchases $48,800

Markdowns $5,500

Markdown Cancellations $780

Employee Discounts $270


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The physical count of inventory on July 31stin a store yielded an inventory value of$27,000, what was the book inventory at retail on January 31 given the followingfigures for the period:

The markup percentage is 40% and the cost of new purchases is $32,000.

STEP 1. convert the opening book inventory from retail to cost:

Opening Book Inventory at Cost = Retail$ * Cost ComplementCost Complement = 100% - MU%Opening Book Inventory at Cost = $27,000 * (100% - 40%)

= $27,000 * 0.60= $16,200

To Calculate the closing book inventory at cost for the following:

Gross Purchases $47,200

Net Sales $33,000

Markdowns $5,500

Return to vendor $2,000



Freight $ 300


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Shortages:

After physical inventory count is completed, book inventory is

adjusted to agree with physical count.

Shortages can be caused by errors in recording markdowns ,

returns to vendor, transfers in and out, merchandise breakage

and theft and human error

Formula:

Shortage( overage)= closing book inventory at Retailclosingphysical inventory at retail

Shortage( overage) % = shortage(overgae) $ Net sales


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To Calculate the shortage or overage for the following:

STEP 1. Calculate the book inventory:

Additions to Retail Value = Net Purchases + Markdown Cancellations

= 48, 800 + 780= 49,580

Deductions to Retail Value = Net Sales + Markdowns + EmployeeDiscounts

= 43,000 + 5, 500 + 270= 48,770

Opening physical inventory $47,200

Net Sales $43,000Net Purchases $48,800

Markdowns $5,500



Physical Inventory at the End

of accounting period

$49,000


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Book Inventory at Retail = Opening Physical Inventory + Additions Deductions= 47200 + 49, 580 48, 770= 48,010

STEP 2. Overage (Shortage) = Closing Book Inventory at Retail

PhysicalInventory at Retail

= 48,010 $49,000

= -990Hence, Overage = -$990

CONCLUSION:

Since the result is a negative number indicating that the physical inventory isactually larger than what the books had stated, it is an overage.

It would have been a shortage if the physical inventory was less than what thebook inventory states.


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Calculating Shortage &

Overage Percentage

Problem: The merchandising plan for the period ending April 30thshows netsales figure of $245,000 and a planned shortage of 1.3%. Calculate the plannedshortage dollars.

We know, shortage %= shortage $ net sales $

And , Shortage $= net sales$ X shortage %

Therefore, Shortage $= $245,000 X 1.3%= $ 3,185


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Cumulative mark up dollars and percentage for total

merchandise:

cumulative markup $ = total merchandise handled at retail

total merchandise handled at cost cumulative markup % = cumulative markup $ total

merchandise handled at retail

Gross cost of merchandise sold:

Gross cost of merchandise sold= merchandise handled at cost

(opening inventory + new purchases + freight)closing

inventory

Gross margin dollars and percentage:

Gross margin $= net salestotal cost of merchandise sold

Gross margin %= gross margin $ Net sales


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Maintained markup dollars and percentage:

Maintained markup $=Net salestotal cost of merchandise sold

Gross margin %= gross margin $ net sales

Total cost of merchandise sold:

Total cost of merchandise sold= gross cost of merchandise soldcash

discounts + alterations/workroom cost

Total merchandise handled at cost:

Merchandise handled at cost= beginning inventory + net merchandise

purchases + freight

Total merchandise handled at retail: Merchandise handled at retail= beginning inventory + net merchandise

purchased (not including freight) + additional markup


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Thank you

retail inventory concepts and calculations

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