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

C.   --- Cost of Shrinkage is greater! 

Answer 2

The quarterly physical inventory shrinkage to be 2.5%.

Sales for the period = $875,495

value of quarterly shrinkage in sales = 2.5 % of 875 495

value of quarterly shrinkage in sales = 21887.875

there are 3 months in one quarter

so value of monthly shrinkage in inventory = 21887.875 ÷ 3 = 7295.29

cost of monitoring the closed circuit TV system = number of hours * employee pay per hour to monitor the system

cost of monitoring the closed circuit TV system = 30 * 11 * 7.5

cost of monitoring the closed circuit TV system = 2475

7295.29 > 2475

the monthly cost of monitoring the closed circuit TV system is less than monthly shrinkage by 4820.29