Question

You are considering the purchase of a closed circuit TV monitoring system for your store. The quarterly physical inventory has shown inventory shrinkage to be 2.5%. Sales for the period were $875,495. The store is open 11 hours a day, 7 days a week. You estimate that you will have to pay an employee $7.50 per hour to monitor the system. Compare the monthly cost of monitoring the closed circuit TV system to monthly shrinkage. Assume 30 days per month.

Answer 1

Answer: Cost of shrinkage is greater

Explanation:

Answer 2

If quarterly shrinkage (every 3 months) is 2.5%, then multiplying by $875,495 gives a value of 21887.38, or an average monthly shrinkage of 21887.38 / 3 = $7,295.79.For an employee to monitor the CCTV, it would cost ($7.5/h)(11 h/d)(30 d/m) = $2,475/month. Therefore, it is much cheaper (around 2/3 cheaper) to have an employee monitor CCTV rather than to allow the high shrinkage rate.